Rethinking revealed comparative advantage with micro and macro data

The Balassa's index of revealed comparative advantage does not necessarily reveal Ricardian comparative advantage. We propose an alternative sufficient statistics approach based on a quantitative standard trade model incorporating firm and product selection. We show that the model's micro foundations do not necessarily imply that the relevant data for the proposed sufficient statistics must include micro information, but its micro structure is needed to understand how only macro information can be used instead. Applying our approach to Chinese micro data and cross-country macro data, we find that firm behavior has far-reaching implications for understanding aggregate productivity and revealed comparative advantage

Three essays on firms and international trade

The first chapter of the thesis investigates the resilience of Chinese manufacturing importers to supply chain disruptions by exploiting the 2003 SARS epidemic as a natural experiment. I show both in theory and empirics that geographical diversification is crucial in building a resilient supply chain. I also find that reduction in trade costs induces firms to further diversify. Connectivity to the transportation network facilitates diversification in input sourcing and reduces the negative impact of SARS. Infrastructure is therefore useful not only in improving the efficiency of the economy, but also in increasing its resilience to shocks. The second chapter studies how changes in factor endowments, technologies, and trade costs jointly determine structural adjustments, which are defined as changes in the distributions of production and exports. During 1999 to 2007, Chinese manufacturing production became more capital-intensive while exports did not. A structurally estimated Ricardian and Heckscher-Ohlin model with heterogeneous firms reconciles this seemingly puzzling pattern. Counterfactual simulations show that capital deepening made Chinese production more capital intensive, but technology changes that biased toward the labour intensive sectors and trade liberalizations provided a counterbalancing force. The last chapter examines how firm heterogeneity shapes comparative advantage. Drawing on matched customs and firm-level data from China, we find that export participation, exported product scope and product mix, and firm mix within industries vary systematically with firms’ labour intensity. This is rationalized by a model in which firms from industries of comparative disadvantage face tougher competition in the export market. The competitive effect induces reallocation within and across firms and generates endogenous Ricardian comparative advantage, which dampens ex ante comparative advantage. Using sufficient statistics to measure and decompose comparative advantage, we find that the dampening mechanism is quantitatively important in shaping comparative advantage for a calibrated Chinese economy

Structural adjustments and international trade: theory and evidence from China

This paper studies how changes in factor endowment, technology, and trade costs jointly determine the structural adjustments, which are defined as changes in distributions of production and exports. We document the structural adjustments in Chinese manufacturing firms from 1999 to 2007 and find that production became more capital-intensive while exports did not. We structurally estimate a Ricardian and Heckscher-Ohlin model with heterogeneous firms to explain this seemingly puzzling pattern. Counterfactual simulations show that capital deepening made Chinese production more capital-intensive, but technology changes that biased toward the labor-intensive sectors and trade liberalizations provided a counterbalancing forc

Scottish independence would be 2-3 times more costly than Brexit, and rejoining the EU won’t make up the difference

In this blog, Hanwei Huang, Thomas Sampson and Patrick Schneider (LSE) analyse the economics of Scottish independence by looking at its impact on trade. Independence would put a new border between Scotland and the rest of the UK, introducing new trade costs. They find that since the rest of the UK is Scotland’s largest trading partner, the impact of independence would be 2-3 times greater than that of Brexit, and rejoining the EU wouldn’t make up the difference

Impact of vaccination on the COVID-19 pandemic in U.S. states

Governments worldwide are implementing mass vaccination programs in an effort to end the novel coronavirus (COVID-19) pandemic. Here, we evaluated the effectiveness of the COVID-19 vaccination program in its early stage and predicted the path to herd immunity in the U.S. By early March 2021, we estimated that vaccination reduced the total number of new cases by 4.4 million (from 33.0 to 28.6 million), prevented approximately 0.12 million hospitalizations (from 0.89 to 0.78 million), and decreased the population infection rate by 1.34 percentage points (from 10.10 to 8.76%). We built a Susceptible-Infected-Recovered (SIR) model with vaccination to predict herd immunity, following the trends from the early-stage vaccination program. Herd immunity could be achieved earlier with a faster vaccination pace, lower vaccine hesitancy, and higher vaccine effectiveness. The Delta variant has substantially postponed the predicted herd immunity date, through a combination of reduced vaccine effectiveness, lowered recovery rate, and increased infection and death rates. These findings improve our understanding of the COVID-19 vaccination and can inform future public health policies

Endogenous cross-region human mobility and pandemics

We study infectious diseases using a Susceptible-Infected-Recovered-Deceased model with endogenous cross-region human mobility. Individuals weigh the risk of infection against economic opportunities when moving across regions. The model predicts that the mobility rate of susceptible individuals declines with a higher infection rate at the destination. With cross-region mobility, a decrease in the transmission rate or an increase in the removal rate of the virus in any region reduces the global basic reproduction number (R0). Global R0 falls between the minimum and maximum of local R0s. A new method of Normalized Hat Algebra is developed to solve the model dynamics. Simulations indicate that a decrease in global R0 does not always imply a lower cumulative infection rate. Local and central governments may prefer different mobility control policies

The costs and benefits of leaving the EU: Trade effects

This paper estimates the welfare effects of Brexit, focusing on trade and fiscal transfers. We use a standard quantitative general equilibrium trade model with many countries and sectors and trade in intermediates, as in Costinot and Rodríguez-Clare (2014). We simulate a range of counterfactuals reflecting alternative options for EU-UK relations following Brexit. Welfare losses for the average UK household are 1.3% if the UK remains in the EU's Single Market like Norway (a “soft Brexit”).Losses rise to 2.7% if the UK trades with the EU under World Trade Organization rules (a “hard Brexit”). A reduced form approach that captures the dynamic effects of Brexit on productivity more than riples these losses and implies a decline in average income per capita of between 6.3% and 9.4%, partly via falls in foreign investment. These negative effects are widely shared across the entire income distribution and are unlikely to be offset from new trade deals

Identification of Rice Transcription Factors Associated with Drought Tolerance Using the Ecotilling Method

The drought tolerance (DT) of plants is a complex quantitative trait. Under natural and artificial selection, drought tolerance represents the crop survival ability and production capacity under drought conditions (Luo, 2010). To understand the regulation mechanism of varied drought tolerance among rice genotypes, 95 diverse rice landraces or varieties were evaluated within a field screen facility based on the ‘line–source soil moisture gradient’, and their resistance varied from extremely resistant to sensitive. The method of Ecotype Targeting Induced Local Lesions in Genomes (Ecotilling) was used to analyze the diversity in the promoters of 24 transcription factor families. The bands separated by electrophoresis using Ecotilling were converted into molecular markers. STRUCTURE analysis revealed a value of K = 2, namely, the population with two subgroups (i.e., indica and japonica), which coincided very well with the UPGMA clusters (NTSYS-pc software) using distance-based analysis and InDel markers. Then the association analysis between the promoter diversity of these transcription factors and the DT index/level of each variety was performed. The results showed that three genes were associated with the DT index and that five genes were associated with the DT level. The sequences of these associated genes are complex and variable, especially at approximately 1000 bp upstream of the transcription initiation sites. The study illuminated that association analysis aimed at Ecotilling diversity of natural groups could facilitate the isolation of rice genes related to complex quantitative traits

Lactic Acidosis Triggers Starvation Response with Paradoxical Induction of TXNIP through MondoA

Although lactic acidosis is a prominent feature of solid tumors, we still have limited understanding of the mechanisms by which lactic acidosis influences metabolic phenotypes of cancer cells. We compared global transcriptional responses of breast cancer cells in response to three distinct tumor microenvironmental stresses: lactic acidosis, glucose deprivation, and hypoxia. We found that lactic acidosis and glucose deprivation trigger highly similar transcriptional responses, each inducing features of starvation response. In contrast to their comparable effects on gene expression, lactic acidosis and glucose deprivation have opposing effects on glucose uptake. This divergence of metabolic responses in the context of highly similar transcriptional responses allows the identification of a small subset of genes that are regulated in opposite directions by these two conditions. Among these selected genes, TXNIP and its paralogue ARRDC4 are both induced under lactic acidosis and repressed with glucose deprivation. This induction of TXNIP under lactic acidosis is caused by the activation of the glucose-sensing helix-loop-helix transcriptional complex MondoA:Mlx, which is usually triggered upon glucose exposure. Therefore, the upregulation of TXNIP significantly contributes to inhibition of tumor glycolytic phenotypes under lactic acidosis. Expression levels of TXNIP and ARRDC4 in human cancers are also highly correlated with predicted lactic acidosis pathway activities and associated with favorable clinical outcomes. Lactic acidosis triggers features of starvation response while activating the glucose-sensing MondoA-TXNIP pathways and contributing to the “anti-Warburg” metabolic effects and anti-tumor properties of cancer cells. These results stem from integrative analysis of transcriptome and metabolic response data under various tumor microenvironmental stresses and open new paths to explore how these stresses influence phenotypic and metabolic adaptations in human cancers