On Globalization and the Growth of Governments

This paper investigates the relationship between trade openness and the size of government, both theoretically and empirically. We show that openness can increase the size of governments through two channels: (1) a terms of trade externality, whereby trade lowers the domestic cost of taxation and (2) the demand for insurance, whereby trade raises risk and public transfers. We provide a unified framework for studying and testing these two mechanisms. First, we show how their relative strength depends on a key parameter, the elasticity of substitution between domestic and foreign goods. Second, while the terms of trade externality leads to inefficiently large governments, the increase in public spending due to the demand for insurance is optimal. We show that large volumes of trade may result in welfare losses if the terms of trade externality is strong enough while small volumes of trade are always beneficial. Third, we provide new evidence on the positive association between openness and the size of government and test whether it is consistent with the terms of trade externality or the demand for insurance. Our findings suggest that the positive relationship is remarkably robust and that the terms of trade externality may be the driving force behind it, thus raising warnings that globalization may have led to inefficiently large governments.

Heterogeneous information and trade policy

Protectionism enjoys surprising popular support, in spite of deadweight losses. At thesame time, trade barriers appear to decline with public information about protection.This paper develops an electoral model with heterogeneously informed voters whichexplains both facts and predicts the pattern of trade policy across industries. In themodel, each agent endogenously acquires more information about his sector of employment. As a result, voters support protectionism, because they learn more about thetrade barriers that help them as producers than those that hurt them as consumers.In equilibrium, asymmetric information induces a universal protectionist bias. Thestructure of protection is Pareto inefficient, in contrast to existing models. The modelpredicts a Dracula effect: trade policy for a sector is less protectionist when there ismore public information about it. Using a measure of newspaper coverage across industries, I find that cross-sector evidence from the United States bears out my theoreticalpredictions.

Sources of comparative advantage in polluting industries (with appendix)

We study the determinants of comparative advantage in polluting industries. We combine dataon environmental policy at the country level with data on pollution intensity at the industry levelto show that countries with laxer environmental regulation have a comparative advantage in polluting industries. Further, we address the potential problem of reverse causality. We propose aninstrument for environmental regulation based on meteorological determinants of pollution dispersion identified by the atmospheric pollution literature. We find that the effect of environmentalregulation on the pattern of trade is causal and comparable in magnitude to the effect of physicaland human capital.

Setting the rules of the game: The choice of electoral systems in advanced democracies

The origins of electoral systems have received scant attention in the literature. Looking at the history of electoral rules in the advanced world in the last century, this paper shows that the existing wide variation in electoral rules across nations can be traced to the strategic decisions that the current ruling parties, anticipating the coordinating consequences of different electoral regimes, make to maximize their representation according to the following conditions. On the one hand, as long as the electoral arena does not change substantially and the current electoral regime serves the ruling parties well, the latter have no incentives to modify the electoral regime. On the other hand, as soon as the electoral arena changes (due to the entry of new voters or a change in their preferences), the ruling parties will entertain changing the electoral system, depending on two main conditions: the emergence of new parties and the coordinating capacities of the old ruling parties. Accordingly, if the new parties are strong, the old parties shift from plurality/majority rules to proportional representation (PR) only if the latter are locked into a 'non-Duvergerian' equilibrium; i.e. if no old party enjoys a dominant position (the case of most small European states)--conversely, they do not if a Duvergerian equilibrium exists (the case of Great Britain). Similarly, whenever the new entrants are weak, a non-PR system is maintained, regardless of the structure of the old party system (the case of the USA). The paper discusses as well the role of trade and ethnic and religious heterogeneity in the adoption of PR rules.

Trade, migration and regional unemployment

We formulate a dynamic core-periphery model with frictions in the job matching process to study the interplay between trade costs, migration and regional unemploymentin the short- and long-run. We find that the spatial distribution of unemployment mirrors (inversely) the distribution of economic activities. Further, we highlight a contrast between the short-run and the long-run effects of trade-induced migration on regional unemployment. In particular, an inßow of immigrants from the periphery into the core reduces the unemployment gap in the short-run, but exacerbates unemployment disparities in the long-run.

Trade credit: Suppliers as debt collectors and insurance providers

There are two fundamental puzzles about trade credit: why does it appearto be so expensive,and why do input suppliers engage in the business oflending money? This paper addresses and answers both questions analysingthe interaction between the financial and the industrial aspects of thesupplier-customer relationship. It examines how, in a context of limitedenforceability of contracts, suppliers may have a comparative advantageover banks in lending to their customers because they hold the extrathreat of stopping the supply of intermediate goods. Suppliers may alsoact as lenders of last resort, providing insurance against liquidityshocks that may endanger the survival of their customers. The relativelyhigh implicit interest rates of trade credit result from the existenceof default and insurance premia. The implications of the model areexamined empirically using parametric and nonparametric techniques on apanel of UK firms.

Geographical deviations in foreign trade statistics: A study into European trade with Latin American Countries, 1925

We have analyzed the spatial accuracy of European foreign trade statistics compared to Latin American. We have also included USA s data because of the importance of this country in Latin American trade. We have developed a method for mapping discrepancies between exporters and importers, trying to isolate systematic spatial deviations. Although our results don t allow a unique explanation, they present some interesting clues to the distribution channels in the Latin American Continent as well as some spatial deviations for statistics in individual countries. Connecting our results with the literature specialized in the accuracy of foreign trade statistics; we can revisit Morgernstern (1963) as well as Federico and Tena (1991). Morgernstern had had a really pessimistic view on the reliability of this statistic source, but his main alert was focused on the trade balances, not in gross export or import values. Federico and Tena (1991) have demonstrated howaccuracy increases by aggregation, geographical and of product at the same time. But they still have a pessimistic view with relation to distribution questions, remarking that perhaps it will be more accurate to use import sources in this latest case. We have stated that the data set coming from foreign trade statistics for a sample in 1925, being it exporters or importers, it s a valuable tool for geography of trade patterns, although in some specific cases it needs some spatial adjustments.

Trade and productivity

We estimate the effect of international trade on average laborproductivity at the country level. Our empirical approach relies onsummary measures of trade that, we argue, are preferable on boththeoretical and empirical grounds to the one conventionally used. Incontrast to the marginally significant and non-robust effects of tradeon productivity found previously, our estimates are highly significantand robust even when we include institutional quality and geographicfactors in the empirical analysis. We also examine the channels throughwhich trade and institutional quality affect average labor productivity.Our finding is that trade works through labor efficiency, whileinstitutional quality works through physical and human capitalaccumulation. We conclude with an exploratory analysis of the role oftrade policies for average labor productivity.

International capital flows and credit market imperfections: A tale of two frictions

The financial crisis of 2007-08 has underscored the importance of adverse selection in financialmarkets. This friction has been mostly neglected by macroeconomic models of financialimperfections, however, which have focused almost exclusively on the effects of limited pledgeability.In this paper, we fill this gap by developing a standard growth model with adverseselection. Our main results are that, by fostering unproductive investment, adverse selection:(i) leads to an increase in the economy s equilibrium interest rate, and; (ii) it generates a negativewedge between the marginal return to investment and the equilibrium interest rate. Underfinancial integration, we show how this translates into excessive capital inflows and endogenouscycles. We also extend our model to the more general case in which adverse selection and limitedpledgeability coexist. We conclude that both frictions complement one another and show thatlimited pledgeability exacerbates the effects of adverse selection.

The quasi-judicial role of large retailers: An efficiency hypothesis of their relation with suppliers

The paper explores an efficiency hypothesis regarding the contractual process between large retailers, such as Wal-Mart and Carrefour, and their suppliers. The empirical evidence presented supports the idea that large retailers play a quasi-judicial role, acting as "courts of first instance" in their relationships with suppliers. In this role, large retailers adjust the terms of trade to on-going changes and sanction performance failures, sometimes delaying payments. A potential abuse of their position is limited by the need for re-contracting and preserving their reputations. Suppliers renew their confidence in their retailers on a yearly basis, through writing new contracts. This renovation contradicts the alternative hypothesis that suppliers are expropriated by large retailers as a consequence of specific investments.

Financial Integration, Trade Openness and International Transmission

[cat] Com afecten l’obertura comercial i financera a la volatilitat macroeconòmica? La literatura existent, tant empírica com teòrica, no ha assolit encara un consens. Aquest article usa un model microfonamentat de dos països simètrics amb entrada endògena d’empreses per estudiar-ho. L’anàlisis es du a terme per tres règims econòmics diferents amb diferents nivells d’integració internacional: una economia tancada, una autarquia financera i una integració plena. Es consideren diversos nivells d’obertura comercial, en forma de biaix domèstic de la demanda i l’economia pot patir pertorbacions en la productivitat del treball i en innovació. El model conclou que la incertesa macroeconòmica, representada principalment per la volatilitat del consum, la producció i la relació real d’intercanvi internacional, depèn del grau d’obertura i del tipus de pertorbació.

Trade policy and regional inequalities

This paper aims to analyse the effects of trade policies in the pattern of regional inequalities within a country. Inspired firstly, by the debate concerning the role of protectionist policies in the settlement of a pattern of striking regional inequalities in the Spanish industrialisation process and secondly, by current evidence of an increase in these inequalities following the entry of Spain in the EU (1986), we set a model that shows that trade liberalisation increases regional inequalities.

Financial crisis: theory and practice

In the last 50 years, we have had approximately 40 events with characteristics related to financial crisis. The most severe crisis was in 1929, when the financial markets plummet and the US gross domestic product decline in more than 30 percent. Recently some years ago, a new crisis developed in the United States, but instantly caused consequences and effects in the rest of the world.This new economic and financial crisis has increased the interest and motivation for the academic community, professors and researchers, to understand the causes and effects of the crisis, to learn from it. This is the one of the main reasons for the compilation of this book, which begins with a meeting of a group of IAFI researchers from the University of Barcelona, where researchers form Mexico and Spain, explain causes and consequences of the crisis of 2007.For that reason, we believed this set of chapters related to methodologies, applications and theories, would conveniently explained the characteristics and events of the past and future financial crisisThis book consists in 3 main sections, the first one called "State of the Art and current situation", the second named "Econometric applications to estimate crisis time periods" , and the third one "Solutions to diminish the effects of the crisis". The first section explains the current point of view of many research papers related to financial crisis, it has 2 chapters. In the first one, it describe and analyzes the models that historically have been used to explain financial crisis, furthermore, it proposes to used alternative methodologies such as Fuzzy Cognitive Maps. On the other hand , Chapter 2 , explains the characteristics and details of the 2007 crisis from the US perspective and its comparison to 1929 crisis, presenting some effects in Mexico and Latin America.The second section presents two econometric applications to estimate possible crisis periods. For this matter, Chapter 3, studies 3 Latin-American countries: Argentina, Brazil and Peru in the 1994 crisis and estimates the multifractal characteristics to identify financial and economic distress.Chapter 4 explains the crisis situations in Argentina (2001), Mexico (1994) and the recent one in the United States (2007) and its effects in other countries through a financial series methodology related to the stock market.The last section shows an alternative to prevent the effects of the crisis. The first chapter explains the financial stability effects through the financial system regulation and some globalization standards. Chapter 6, study the benefits of the Investor activism and a way to protect personal and national wealth to face the financial crisis risks.

Financial Integration, Trade Openness and International Transmission

[cat] Com afecten l’obertura comercial i financera a la volatilitat macroeconòmica? La literatura existent, tant empírica com teòrica, no ha assolit encara un consens. Aquest article usa un model microfonamentat de dos països simètrics amb entrada endògena d’empreses per estudiar-ho. L’anàlisis es du a terme per tres règims econòmics diferents amb diferents nivells d’integració internacional: una economia tancada, una autarquia financera i una integració plena. Es consideren diversos nivells d’obertura comercial, en forma de biaix domèstic de la demanda i l’economia pot patir pertorbacions en la productivitat del treball i en innovació. El model conclou que la incertesa macroeconòmica, representada principalment per la volatilitat del consum, la producció i la relació real d’intercanvi internacional, depèn del grau d’obertura i del tipus de pertorbació.

Trade policy and regional inequalities

This paper aims to analyse the effects of trade policies in the pattern of regional inequalities within a country. Inspired firstly, by the debate concerning the role of protectionist policies in the settlement of a pattern of striking regional inequalities in the Spanish industrialisation process and secondly, by current evidence of an increase in these inequalities following the entry of Spain in the EU (1986), we set a model that shows that trade liberalisation increases regional inequalities.