Working Papers

Import Competition, Innovation, and the Cost of Protectionism (link) 

How does import protectionism affect catch-up innovation and welfare? I develop a small open-economy model in which trade costs shape buyer–supplier relationships, and suppliers’ incentives to innovate. When trade costs rise, domestic buyers become more inclined to shift sourcing from foreign to domestic suppliers. The possibility of this shift triggers heterogeneous innovation responses among domestic suppliers: those suppliers that are less technologically advanced than their foreign competitors increase their innovation, while other, more advanced suppliers reduce it. I verify and quantify the buyers’ shift in sourcing as well as the suppliers’ heterogeneous innovation responses to this shift using novel Turkish firm–product-level data on firm-to-firm transactions, imports, production, and innovation expenditures. I build on these firm level responses to assess the impact of import protectionism on welfare. If domestic suppliers in the aggregate respond to a rise in trade costs by increasing innovation, the welfare losses of such a policy are partially mitigated. If, on the other hand, they respond by decreasing innovation, the welfare losses are amplified.  Calibrating the model to Turkish microdata, I find that a 10 percent rise in trade costs in Turkiye triggers an increase in aggregate innovation, which mitigates roughly one-quarter of the welfare loss relative to a no-innovation benchmark.

Plastic Dumping Grounds: The International Incidence of Environmental Regulation with Banu Demir & Swati Dhingra (link and Supplemental Appendix) 

Environmental regulations often generate environmental improvements at home, yet their consequences may extend far beyond the countries that adopt them. The international incidence of environmental regulation remains poorly understood. We study where the resulting environmental damages emerge and who ultimately bears their costs using China's 2017 ban on waste imports, which triggered a large reallocation of global recycling activity. Combining international trade data, administrative records, direct measures of firms' waste mismanagement, and local pollution data in the main destination for diverted waste, we examine the international incidence of environmental regulation by tracing the rarely observed process linking trade reallocation to firm behavior, pollution exposure, and welfare. The ban increased pollution-intensive plastic waste imports, lowering input costs for downstream firms using recyclable materials. Meanwhile, imported waste displaced domestic recyclables, leading firms to adopt harmful disposal methods. The environmental damages from air pollution exceeded the economic gains from access to lower-cost inputs.