Speeding Up the Product Cycle: The Role of Host Country Reforms

We study the effects of policy reforms in the South on the decisions of intrafirm and arm's length production transfers by Northern firms. We show theoretically that relaxing ownership controls and improving contract enforcement can induce multinational companies to expand product varieties to host developing countries, and that a combination of the two reforms has an amplifying effect on product transfers. Consistent with these implications, we find that ownership liberalization and judicial quality played an important role in raising the extensive margin of processing exports in China for the period of 1997-2007. Our findings imply that institutional reforms in developing countries can effectively speed up the product cycle.product cycle, ownership structure, contract environment, export variety, processing trade, China

Nickell Bias in Panel Local Projection: Financial Crises Are Worse Than You Think

Local Projection is widely used for impulse response estimation, with the Fixed Effect (FE) estimator being the default for panel data. This paper highlights the presence of Nickell bias for all regressors in the FE estimator, even if lagged dependent variables are absent in the regression. This bias is the consequence of the inherent panel predictive specification. We recommend using the split-panel jackknife estimator to eliminate the asymptotic bias and restore the standard statistical inference. Revisiting three macro-finance studies on the linkage between financial crises and economic contraction, we find that the FE estimator substantially underestimates the post-crisis economic losses

News Shocks in Open Economies: Evidence from Giant Oil Discoveries

This paper explores the effect of news shocks on the current account and other macroeconomic variables using worldwide giant oil discoveries as a directly observable measure of news shocks about future output ? the delay between a discovery and production is on average 4 to 6 years. We first present a two-sector small open economy model in order to predict the responses of macroeconomic aggregates to news of an oil discovery. We then estimate the effects of giant oil discoveries on a large panel of countries. Our empirical estimates are consistent with the predictions of the model. After an oil discovery, the current account and saving rate decline for the first 5 years and then rise sharply during the ensuing years. Investment rises robustly soon after the news arrives, while GDP does not increase until after 5 years. Employment rates fall slightly for a sustained period of time