Research

Much of my current research takes place in the context of the research project funded by the German Science Foundation (DFG): 

Global Production and its Watchdogs: Firms and NGOs in the Regulatory Void
For more information, visit the project website.

Workings Papers:

Local Global Watchdogs: Trade, Sourcing and the Internationalization of Social Activism
with Pamina Koenig (University of Rouen and Paris School of Economics), Claudius Löhnert (University of Passau), Thierry Verdier (Paris School of Economics)
revise and resubmit, Journal of International Economics
CEPR Discussion Paper no. 15878, current version: November 2021 (first version: March 2021)
CESifo Working Paper no. 9068, current version: March 2023 (first version: May 2021)
VoxEU column 

Abstract: NGO campaigns criticizing firms for infringements along their internationalized value chains are a salient feature of economic globalization. We argue that understanding the international patterns of NGO campaigns requires accounting for the geography of their targets’ economic activities. We propose a model of global sourcing and international trade in which heterogeneous NGOs campaign against heterogeneous firms in response to infringements along their value chains. We find that campaigns are determined by a triadic gravity equation involving the country of the NGO, the country of the firm as well as the sourcing country. Importantly, independent of the location of the NGO, trade costs between the supplier and the firm shape the patterns of NGO campaigns. We use recently available data to estimate our triadic gravity equation at the NGO level and find strong support for this prediction as well as for other predictions specific to our modeling approach.

A Simple Model of Buyer-Seller Networks in International Trade
with Philipp Herkenhoff (University of Mainz) and Philip Sauré (University of Mainz)
CESifo Working Paper no. 9124, July 2021 (first version: May 2021)
CEPR Discussion Paper no. 16278, July 2021 (first version: June 2021)
Slides (September 2020)

Abstract: The recent literature on firm-to-firm trade has documented salient empirical regularities of the buyer-seller network. We propose a simplistic re-interpretation of the classical Krugman (1980) model that accounts for surprisingly many of the empirical regularities. This re-interpretation relies on randomized bundling of Krugman-varieties into heterogeneous firms, economically neutral ``sales units'' that import foreign varieties but belong to local firms, and a statistical reporting threshold that applies to firm-to-firm transactions. We argue that our model provides an important benchmark for the assessment of theoretical models that aim to identify the determinants of firm-to-firm networks in international trade.

Publications:

Corporate Social Responsibility along the Global Value Chain (open access)
with Philipp Herkenhoff, Finn Ole Semrau and Frauke Steglich
Journal of Development Economics, vol. 167, March 2024, 103236
online material
(Previous version: CESifo Working Paper No. 9498, December 2021)

Abstract: Locating substantial parts of the production process in developing and emerging economies, many firms face an increasing demand by stakeholders for Corporate Social Responsibility (CSR) along their value chains. Contractual incompleteness between firms and their suppliers at different stages of production can exacerbate the ability to meet these demands. We analyze a model of sequential production with incomplete contracts where CSR by independent suppliers differentiates the final product in the eyes of caring consumers. Progressing down the value chain, our model predicts an increasing CSR profile from upstream suppliers with low CSR to downstream suppliers with higher CSR. We confirm this prediction using Indian firm-level data – computing a firm’s value chain position by combining its product-level sales information with the World Input–Output Database. We find that more downstream firms report higher CSR expenditures as measured by a combination of staff welfare spending and social community spending.

The International Organization of Production in the Regulatory Void
with Philipp Herkenhoff
Journal of International Economics, vol. 137, July 2022
online material
(Previous version: CESifo Working Paper No. 6922, February 2020, Online Appendix of the CESifo WP)

Abstract: In recent decades, many leading firms in a diverse set of industries have faced consumer boycotts and NGO campaigns based on allegations of `unethical' practices along their international value chains. The large number of campaigns triggered by actions of independent suppliers points at a link between (un)ethical practices and the organization of production. We construct a measure of potential cost savings of unethical production at the industry-country level and show that it indeed correlates positively with international outsourcing rather than integration. To rationalize our finding and to investigate the issue further, we introduce a cost-saving `unethical' technology and consumer boycotts into a standard property-rights model of the international organization of production. In equilibrium, the supplier’s (un)ethical technology choice interacts with the headquarter’s novel unethical outsourcing incentive. In line with our empirical findings, we show that the headquarter tends to keep an unethical supplier at arm’s length.

Offshoring with Endogenous NGO Activism
with Thierry Verdier
Journal of International Economics Vol. 101, pp. 22–41, July 2016
Previously circulated as CEPR Discussion Paper 9232: "Globalization, Credence Goods, and International Civil Society"

Abstract: The process of globalization is characterized by an impressive growth of global value chains, as well as the proliferation of non-governmental organizations (NGOs) interacting with multinational firms. This paper presents a model of offshoring and NGO-firm interactions in which offshoring to a low-regulation country allows a monopolist to implement a `dirty' technology undesired by consumers. Consumers can reduce the incentive for dirty production by financing an NGO monitoring the firm.  NGO emergence and offshoring can arise as joint and interacting outcomes. For a range of trade costs, NGO emergence allows firms to capture gains from globalization, which would otherwise be unattainable. Somewhat paradoxically, NGO emergence can be at the expense of consumers possibly leading to welfare losses through offshoring.

Wages and International Tax Competition
with Tim Schmidt-Eisenlohr
Review of International Economics, May 2016, doi:10.1111/roie.12227

Abstract: We introduce wage bargaining and private information into a model of profit shifting and tax competition between a large and a small country. Shifting profits to the small country not only reduces a firms' tax bill but also creates private information on profitability, altering the wage bargaining in favor of the firm. The new shifting incentive makes the tax base of the large country more elastic and leads to higher outflows, lower wages, higher firm profits and lower equilibrium tax rates.  Moreover, tax rates alone no longer determine the direction and the extent of profit shifting.

Export-supporting FDI
Canadian Journal of Economics, Vol. 46 (4), pp. 1571-1605, November 2013

Abstract: A large fraction of affiliates owned by multinational manufacturing companies operate in the wholesale and retail sectors. This paper proposes a model of trade, horizontal FDI, and export-supporting FDI (ESFDI). ESFDI reduces distribution costs abroad, while production remains at home. ESFDI introduces a complementarity between trade and FDI, while trade and production abroad remain substitutes. German firm-level FDI data show that ESFDI is quantitatively relevant. In line with the model, most firms choose either ESFDI or horizontal FDI in a given market; ESFDI is chosen by smaller parents and is strongest when distance from Germany is low.

Heterogeneous Firms, Exporter Networks and the Effect of Distance on International Trade
Journal of International Economics, Vol. 87 (1), pp. 27-35, May 2012

Abstract: Distance effects in gravity equations are high and are not decreasing over time. Given that technical change in transport technology is biased in favor of long distances, this constitutes a challenge for existing theoretical models. In line with recent empirical evidence, this paper introduces a spillover effect from the number of exporters to the fixed costs of exporting into a trade model with heterogeneous firms. Since less firms export to remote markets, the equilibrium fixed costs are increasing in distance. This creates an additional effect of distance on aggregate trade flows: while the intensive margin of trade is unaffected, the extensive margin is magnified. This magnification leads to higher predicted distance effects. In addition, it offers a new perspective on non-decreasing distance effects: a relatively moderate strengthening of the spillover over time is sufficient to generate a constant distance elasticity.

Heterogeneous Firms, 'Profit Shifting' FDI and International Tax Competition
with Tim Schmidt-Eisenlohr
Journal of Public Economics, Vol. 95 (1-2), pp. 122-133, February 2011

Abstract: Larger firms are more likely to use tax haven operations to exploit international tax differences. We study tax competition between a large country and a tax haven. In the large country, heterogeneous firms operate under monopolistic competition and can choose to shift profits abroad. We show that a higher degree of firm heterogeneity (a mean-preserving spread of the cost distribution) increases the degree of tax competition, i.e. it decreases the equilibrium tax rate of the large country, leads to higher outflows of its tax base and thus decreases its equilibrium tax revenues. Similar effects hold for a higher substitutability across varieties.