Specialization on a technologically atagnant aector need not be bad for growth

This paper presents a simple North-South model of endogenous growth, based on learning by doing, which is consistent with the following empirical observations: (i) the price of investment goods relative to consumption goods has been falling for the last 40 years in most industrialized countries, (ii) poor countries are net importers of investment equipment and (iii) after a period of initial convergence, the sample of open economies exhibits remarkable stability of the per capita income distribution. In contrast to the research tradition started by Lucas (1988), in the proposed model, specialization on the technologically stagnant consumption sector does not entail a growth penalty.endogenous growth; AK model; international trade; embodied technical change

WTO Membership and the Extensive Margin of World Trade: New Evidence

Recent literature has argued that, contrary to the results of a seminal paper by Rose (2004), WTO membership does promote bilateral trade, at least for developed economies and if membership includes non-formal compliance. We review the literature in order to identify open issues. We then develop the simplest possible “corner-solutions" version of the gravity model which serves as a framework to readdress these issues. We focus on the extensive margin of trade that separates positive-trade from zero-trade country pairs. We argue that the model can be consistently estimated using Poisson pseudo-maximum-likelihood methods with exporter and importer fixed effects. We account for coding issues and the potential heterogeneity of the WTO membership which recent contributions have stressed. While we find that WTO membership increases the likelihood that a given country pair trades, we do not find that the extensive margin has a strong and systematic effect on the average trade-creating potential of the WTO.gravity approach, WTO, monopolistic competition, real trade costs

Cultural Proximity and Trade

Cultural proximity is an important determinant of bilateral trade volumes. However, empirical quantification and testing are difficult due to the elusiveness of the concept and lack of observability. This paper draws on bilateral score data from the Eurovision Song Contest, a very popular pan-European television show, to construct a measure of cultural proximity which varies over time and within country pairs, and that correlates strongly with conventional indicators. Within the framework of a theory-grounded gravity model, we show that our measure positively affects trade volumes even if controlling for standard measures of cultural proximity and bilateral fixed effects.International trade Gravity equation Cultural proximity Eurovision song contest

What a Difference Kyoto Made: Evidence from Instrumental Variables Estimation

The Kyoto Protocol’s success or failure should be evaluated against the unobserved counterfactual of no treatment. This requires instrumental variables. We find that countries’ membership in the International Criminal Court (ICC) predicts Kyoto ratification in a panel model. Both multilateral policy initiatives triggered concerns about national sovereignty in many countries. We argue that ICC membership can be excluded from second-stage regressions explaining emissions and other outcomes. This is supported by first-stage diagnostics. Our results suggest that Kyoto had measurable beneficial effects on the average Kyoto country’s energy mix, fuel prices, energy use and emissions, but may have speeded up deindustrialization.CO 2 emissions, energy, evaluation model, instrumental variables, Kyoto Protocol

Kyoto and the Carbon Footprint of Nations

A country’s carbon footprint refers to the CO 2 emissions caused by domestic absorptionactivities. Trade in goods drives a wedge between the footprint and local emissions. Weprovide a panel database on carbon footprints and carbon net trade. Using a differencesin-differences IV estimation strategy, we evaluate the Kyoto Protocol’s effects on carbonfootprints and emissions. Instrumenting countries’ Kyoto commitment by their participationin the International Criminal Court, we show that Kyoto reduced domestic emissionsin committed countries by 7%, has not lowered footprints, but increased the share ofimported over domestic emissions by 17 percentage points. This indicates carbon leakage.Carbon content of trade, carbon footprint, carbon leakage, evaluation model, instrumental variables

The underestimated virtues of the two-sector AK model

We show that the two-sector version of the AK model proposed by Rebelo (1991) can be read as an endogenous growth extension of Greenwood, Hercowitz and Krusell (1997). By confining constant returns to capital to the investment goods sector, the model generates endogenously the secular downward trend of the relative price of equipment investment and the rising real investment rate observed in US NIPA data. Whereas Jones (1995) criticizes that the one-sector model fails to reconcile the empirical facts of trending real investment rates and stationary output growth, this incompatibility vanishes in the two-sector version. Finally, a simple technological shock can reproduce the ‘1974’ break in post World War II US data. Thus, AK-type endogenous growth models comply much better with empirical evidence, once they are augmented with a strictly concave consumption sector.AK model; embodiment; endogenous growth; obsolescence; ‘1974’

Cultural proximity and trade

Cultural proximity increases bilateral trade flows through a trade-cost and a bilateral-affinity (preferences) channel. Conventional measures of cultural proximity, such as common language, common religion, etc., do not allow to separately quantify those channels empirically. We argue that quality-adjusted Eurovision Song Contest (ESC) scores can be used as dyadic, time-variant information on European countries' cultural proximity. Assuming that the tradecost related component of cultural proximity is time-invariant, in a gravity model of bilateral trade, the time dimension of the ESC data allows to identify the preferences effect. The validity of our identification strategy can be tested by exploiting the lack of systematic reciprocity in ESC scores. While we find robust evidence for a sizable preferences effect, the impact of cultural proximity on trade runs largely through the cost effect. --international trade,gravity equation,cultural prox imity,identification

Kyoto and the carbon content of trade

A unilateral tax on CO2 emissions may drive up indirect carbon imports from non-committed countries, leading to carbon leakage. Using a gravity model of carbon trade, we analyze the effect of the Kyoto Protocol on the carbon content of bilateral trade. We construct a novel data set of CO2 emissions embodied in bilateral trade flows. Its panel structure allows dealing with endogenous selection of countries into the Protocol. We find strong statistical evidence for Kyoto commitments to affect carbon trade. On average, the Kyoto protocol led to substantial carbon leakage but its total effect on carbon trade was only minor. --Carbon leakage,gravity model,international trade,climate change,embodied emission,input-output analysis

Can International Migration Ever Be Made a Pareto Improvement?

We argue that compensating losers is more difficult for immigration than for trade and capital movements. While a tax-cum-subsidy mechanism allows the government to turn the gains from trade into a Pareto improvement, the same is not true for the so-called immigration surplus, if the redistributive mechanism is not allowed to discriminate against migrants. We discuss policy conclusions to be drawn from this fundamental asymmetry between migration and other forms of globalization.Migration Surplus, Redistribution, Pareto Improvement

Within US Trade and the Long Shadow of the American Secession

Using data from the US commodity flow surveys, we show that the historical Union-Confederacy border lowers contemporaneous trade between US states by about 16 percentrelative to trade flows within the former alliances. Amongst one million placebos, thereis no other constellation of state grouping that would yield a larger border effect. Thefinding is robust over different econometric models, treatment of the rest of the world,available survey waves, or levels of aggregation. Including contemporaneous controls,such as network, institutional or demographic variables, and Heckscher-Ohlin or Linderterms, lowers the estimate only slightly. Historical variables, such as the incidence ofslavery, do not explain the effect away. Adding US states unaffected by the Civil War,we argue that the friction is not merely reflecting unmeasured North-South differences.Finally, the estimated border effect is larger for differentiated than for homogeneousgoods, stressing the potential role for cultural factors and trust.American Secession, border effect, intranational trade, gravity, US state levels