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 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.