An empirical analysis of foreign trade

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An empirical analysis of foreign trade

David Autor IZA World of Labor, February The costs and benefits of free trade are among the most contentious topics in economic policy, no less today than two centuries ago when David Ricardo developed the theory of comparative advantage. While economists often argue in policy discussions—though not in textbooks—that trade is Pareto improving i.

In truth, both views are oversimplified. Trade grows the economic pie— that is, it is not constant-sum—but it typically shrinks the slices received by some citizens. Economic policy must grapple with how to maximize the shared gains while mitigating the concentrated costs that accompany trade integration.

On average, trade shocks differentially reduce employment and earnings, raise the prevalence of idleness, and elevate premature mortality among young males. Consistent with sociological accounts, these shocks raise the share of mothers who are unwed and share of children living in below-poverty, single-headed households.

Has rising import competition contributed to the polarization of U. Analyzing outcomes from the and congressional elections and the, and presidential elections, we detect an ideological realignment that is centered in trade-exposed local labor markets and that commences prior to the divisive U.

Exploiting the exogenous component of rising trade with China and classifying legislator ideologies by congressional voting records, we find strong evidence that congressional districts exposed to larger increases in import penetration disproportionately removed moderate representatives from office in the s.

Trade-exposed districts with an initial majority white population or initially in Republican hands became substantially more likely to elect a conservative An empirical analysis of foreign trade, while trade-exposed districts with an initial majority-minority population or initially in Democratic hands also become more likely to elect a liberal Democrat.

In presidential elections, counties with greater trade exposure shifted towards the Republican candidate. We interpret these results as supporting a political economy literature that connects adverse economic conditions to support for nativist or extreme politicians.

The competitive shock to the U. Using three distinct sources of variation to identify rising trade exposure, we provide a causal analysis of the effect of surging import competition on U. Applying a novel internet-based matching algorithm to map all U.

The trade-induced contraction along all margins of adjustment and for all measures of valuation suggest that the primary response of firms to greater import competition is to scale back their global operations.

We conclude that the main critique provided by the comment is not supported empirically. David Autor, David Dorn, and Gordon Hanson March In a series of recent papers, Rothwell a, b, claims that the empirical results in Autor, Dorn, and Hanson on the impact of import competition with China on local labor markets in the United States are subject to specification bias, not robust to separating the sample into sub-periods, and subject to other weaknesses in analytical approach.

We find a robust positive effect of rising import competition on Republican vote share gains. The magnitude of the Republican gains is non-trivial.

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A counterfactual study of closely contested states suggests that Michigan, Wisconsin, Pennsylvania and North Carolina would have elected the Democrat instead of the Republican candidate if, ceteris paribus, the growth in Chinese import penetration had been 50 percent lower than the actual growth during the period of analysis.

The Democrat candidate would also have obtained a majority in the electoral college in this counterfactual scenario. These results add to previous research that documents negative impacts of import competition on employment and earnings in trade-exposed local labor markets Autor, Dorn and Hanson, ; Acemoglu et al.

Simultaneously, it has challenged much of the received empirical wisdom about how labor markets adjust to trade shocks. Alongside the heralded consumer benefits of expanded trade are substantial adjustment costs and distributional consequences.

These impacts are most visible in the local labor markets in which the industries exposed to foreign competition are concentrated. Adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences.

Exposed workers experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U. Better understanding when and where trade is costly, and how and why it may be beneficial, are key items on the research agenda for trade and labor economists.

Even before the Great Recession, US employment growth was unimpressive. Between andthe economy gave back the considerable employment gains achieved during the s, with a historic contraction in manufacturing employment being a prime contributor to the slump. We estimate that import competition from China, which surged afterwas a major force behind both recent reductions in US manufacturing employment and—through input-output linkages and other general equilibrium channels— weak overall US job growth.

Our central estimates suggest job losses from rising Chinese import competition over — in the range of 2.1.

An empirical analysis of foreign trade

Introduction. There have been many arguments in both theoretical and empirical literatures, which suggest that economic prosperity is associated with significant inflows of foreign . International Journal of Academic Research in Business and Social Sciences August , Vol. 4, No. 8 ISSN: The Impact of Exchange Rate Fluctuation on the.

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