Recent Papers 

Does the 2018/19 US-China trade war trigger adjustment of Global Value Chains (GVCs) and nearshoring to Mexico? We address this question with confidential longitudinal firm-level trade data from Mexico that covers the universe of international trade transactions over 2015-2021. By merging the firm-level customs data with GVC firms' directories and constructing firm-level measures of trade policy exposures based on firms' pre-shock trade at the level of HS 6-digit products-destination pairs, we show that increased Chinese import protection in the US has a significant positive impact on Mexican firms' trade with the US. This positive impact is entirely driven by GVC firms, especially GVC firms in skilled manufacturing industries. The nature of the impact of the heightened Chinese import tariffs on GVC firms' sourcing indicates a rise in GVC activities in Mexico with linkages to Asian and US-based GVCs. Our analysis also reveals increased net export and product offerings of Mexican GVC firms in response to the heightened Chinese import protection in the US, suggesting increased domestic activities in Mexico. However, we also document a negative impact of the retaliatory tariffs of China, primarily affecting export services GVCs and a counterbalancing negative effect of the US tariffs via GVC firms' inputs from China, highlighting the complex dynamics at play. Overall, our findings show a reorganization of GVCs in favor of Mexico as a consequence of the trade war and provide evidence for the role of trade policy in reshaping GVCs.

This paper examines the role of international trade for job polarization, where mid-wage occupations decline while employment opportunities of workers in both high- and low-wage occupations increase. We employ employer-employee matched data from Denmark and utilize plausibly exogenous variation in the rise of import competition due to the dismantling of import quotas as China entered the World Trade Organization to show, first, that rising import competition has led to reduced employment in mid-wage occupations compensated by an increased likelihood of employment in both low-wage and high-wage occupations. Workers with higher education are more likely to move from mid- to high-wage occupations due to trade compared to moving from mid- to low-wage occupations. Employing task content information of detailed occupations, we also show that workers performing manual tasks are the ones most affected by import competition independently of the routine-task intensity of occupations. This implies that the effect of import competition is distinct from that of routine task-replacing technological change.

Using employee-employer matched data, I analyze the impact of a low-wage trade shock on manufacturing workers in a high-wage country, Denmark, and how they adjust to the shock over a decade. I derive causal effects by exploiting the dismantling of the Multifiber Arrangement quotas on products from China upon its WTO accession as a quasi-natural experiment and use within-industry, within-occupation heterogeneity in workers’ exposure to this shock. I find significant negative long-run effects on earnings and employment trajectories and identify job instability in the service sector as a main adjustment friction, concentrated among workers with manufacturing-specific education and occupation. The results establish the importance of specific human capital in trade adjustment and provide evidence of skill upgrading as workers rebuild lost human capital through education.

Wholesale trade firms and their role in international trade are examined using transaction and firm level data sets from Denmark for the period 1998–2006. Compared to internationally trading manufacturing firms, wholesale firms trading internationally are found to focus on fewer countries with more products and lower unit values, and their involvement in international trade transactions differ significantly across industries. Manufacturing industries with more competitive structure, lower firm size, lower capital intensity, higher production fragmentation and lower export/import intensities are found to have higher wholesale share of export. The analysis shows that export and import premia also exist among wholesale trade firms, which is in line with the idea that these premia result from fixed costs of exporting/importing. Systematic differences between wholesale trade firms in intermediate goods markets versus in consumption goods markets are also documented and found critical in understanding the role of intermediaries in international trade. While in intermediate goods export wholesale trade firms’ unit prices are found to be significantly higher than manufacturers unit prices of the same good, the opposite holds true for consumption goods export. Wholesale trade firms that specialize in export of intermediate goods are found to be more skill intensive and pay more in comparison to other exporting wholesale trade firms. The wage premium for exporters of intermediate goods for professional level occupations is robust to controlling for detailed firm and worker characteristics. The results suggest that theories highlighting the potential roles of intermediaries should take the intermediaries’ location in the supply chain into account.

Relative to their counterparts in high-income regions, entrepreneurs in developing countries face less efficient financial markets, more volatile macroeconomic conditions, and higher entry costs. This article develops a dynamic empirical model that links these features of the business environment to cross-firm productivity distributions, entrepreneurs’ welfare, and patterns of industrial evolution. Fit to panel data on Colombian apparel producers, the model yields estimates of a credit market imperfection index, the sunk costs of creating a new business, and various technology parameters. Model-based counterfactual experiments suggest that improved intermediation could dramatically increase the return on assets for entrepreneurial households with modest wealth.

Using the dismantling of the Multi-fibre Arrangement quotas on Chinese textile products in conjunction with China’s accession to the World Trade Organization (WTO), within firms adjustments to intensified low-wage competition is analyzed. Employing Danish employer-employee matched data covering from 1995 to 2007, the analysis shows a significant change in the workforce composition of firms in response to heightened competition. Competition is found to negatively affect employment, value-added, and intangible assets of the Danish firms, and firms refocus away from products, where China’s competitive advantage becomes higher. The results show an important role of the distributional impact of low-wage competition within firms in restructuring the industry.

Effects of the competition between two South locations (Mexico and China) in a Northern market (US) are analyzed. By employing a plant-level data set that covers the universe of Mexican export processing plants (maquiladoras) from 1990 to 2006 and relying on an instrumental variable strategy that exploits exogenous intensification of Chinese imports in the world in conjunction with the WTO accession of China, the empirical analysis reveals a substantial effect of intensified Chinese competition on maquiladoras. In particular, competition from China has a negative and significant impact on employment and plant growth, both through the intensive and the extensive margin. As the negative impact is stronger on the most unskilled labor intensive sectors, it triggers significant sectoral reallocation. Suggestive evidence on industrial upgrading among maquiladoras in response to competition with China is also provided. Overall the results provide additional insight into the way low-wage competition shapes the evolution of industries.

Some Not-So Recent Working Papers

In order to quantify the effect of foreign competition in domestic industries and to elucidate the cross-country differences that have been observed in response to intensified import competition, this paper presents and estimates an open industry model under monopolistic competition and aggregate uncertainty. It provides a novel method for rigorously characterizing how firms adjust to intensified import competition and aggregate shocks in a structural framework. 

In the model, heterogeneous firms face competition both from outside the country through imports and from inside the country in the domestic market. Firms react to changes in the competitive environment through both hiring and firing on the intensive margin and entry and exit on the extensive margin. Plant-level panel data are used to estimate the model's parameters, including the sunk start-up costs faced by new firms, fixed per period costs, the stochastic process that governs firms' idiosyncratic productivity shocks, and the adjustment costs associated with changing employment levels. Then, with the estimates of the structural parameters, the model is used to characterize and quantify the effects of intensified import competition on job turnover patterns, productivity distributions, and entry and exit patterns of the firms. The model also characterizes the interactions among intensified import competition, labor market regulation and exchange rate regime. Thus it elucidates the cross-country, cross-industry differences that have been observed in response to heightened import competition. The model predicts the associated changes in aggregate productivity, employment, job flow patterns and mark-ups in the new long-run equilibrium as well as the nature of the transition process when openness changes, and the role of adjustment costs in shaping firms' behavior.

Using data from the entire pool of manufacturing plants in Chile from 1990 to 1996, evidence found in this paper for a specific channel through which learning by exporting can happen: domestic exporters gain enhanced access to foreign technical and professional services by virtue of their presence in the foreign market and actively use it to acquire productivity improving capabilities. It is first shown that export experience may help firms to have foreign technical service market access. Using the propensity-score matching technique to control for self-selection firms are matched within narrowly defined industries. Using the difference in difference estimator that removes the effects of aggregate shocks, strong evidence is found for 'learning by exporting' but only among those that have access to foreign technical service markets.