Deniz Atalar - Research

Job Market Paper

Import Competition, Innovation, and the Cost of Protectionism (Draft Coming Soon)

Many countries are increasingly implementing tariffs, despite longstanding concerns from economists about their consequences. But how detrimental are tariffs? I examine this question in the context of a small open economy where firms endogenously innovate. I build a model where firms’ innovation decisions depend on their technological proximity to foreign competitors; tariffs alter this proximity, reshaping incentives for innovation. Modest tariffs bring domestic firms closer to their foreign rivals, strengthening innovation incentives and raising aggregate productivity. High tariffs, by contrast, push firms further apart and dampen innovation. Using Turkish firm-product-level data, I find that firms’ spending on technological upgrades rises when their technological gap with foreign competitors narrows and falls when the gap widens, consistent with the model. Calibrated to Turkish microdata, a 10% tariff reduces welfare by 3.1%, compared with 4.1% in a no-innovation benchmark—implying that innovation prompted by tariff hikes attenuates, but does not overturn, the static costs of protection.

Publication

Trade Liberalization and Quality Upgrading: Third-Country Effects Journal of Development Economics -- October 2025 [Pre-published online] (JDE link)

This paper theoretically and empirically shows that trade liberalization can have serious effects on firms within a third country which was not party to the trade liberalization, but which previously benefited from the trade barrier in trading with the liberalizing country. The liberalization increases competition for exporters in the third country, just as it does for firms in the liberalizing country. When a policy of liberalization is implemented toward a country that specializes in low-quality products, mid-productivity firms respond by upgrading the quality of their exports to escape intensified competition. I empirically test this theoretical finding by analyzing how Turkish firms responded to the elimination of EU quotas on China in 2005. Following this trade liberalization, the unit value of the products exported by mid-productivity Turkish firms to the EU increased by 8 percentage points more than that of the control group. This upward adjustment in the unit value of exports was accompanied by a 3 percentage point increase in the average unit value of imported inputs.

Working Paper

Plastic Turkey: International Leakages of China's Waste Import Ban with Banu Demir & Swati Dhingra (link)

Trade and environmental policies of large economies can have significant effects on the level and incidence of pollution and economic activity around the world. This paper studies the environmental and economic effects of China’s ban on plastic waste imports. In recent decades, high-income countries have reduced their plastic waste burden by exporting it to lower-income countries, primarily China, often raising concerns over creation of waste havens in parts of the world where environmental regulation is weaker. Following environmental concerns at home, China banned key plastic waste imports in 2017. This paper shows that China’s policy led to a diversion of trade that had repercussions for countries across the world. Turkey emerged as a major importer of plastic waste from high-income countries. We provide direct evidence that importers in Turkey gained economically from better access to plastic waste that could be recycled and re-used as inputs in production. But their gains did not outweigh the losses of domestic firms that generated plastic waste and were displaced by import competition after China’s ban. These domestic waste generators became more likely to mismanage their plastic waste, including through burning or dumping in water bodies. Air pollution increased more in Turkish regions where they were located. We model the channels of waste recycling and virgin resource use in a gravity model of trade and the environment to quantify the global spillovers of environmental externalities and the welfare impacts of China’s unilateral import ban policy. The ban generated aggregate emission savings through trade destruction effects in the world plastic waste market, but the economic and environmental burden was unequally distributed across countries.

Work in Progress

Self-Financing, Financial Frictions, and the Credibility of Monetary Policy (with Fred Seunghyun Maeng)