Working Papers
Working Papers
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We study how Rules of Origin (RoO) affect the use of NAFTA. Firms exporting using NAFTA have to comply with RoO to enjoy preferential tariff treatment. We document that: (i) the smallest and largest firms use NAFTA less intensively than medium-sized firms, and (ii) the decrease in input sourcing from non-NAFTA countries when using NAFTA to export is increasing in firm size. We rationalize these empirical findings by including fixed costs of using NAFTA and of sourcing from foreign countries in a model of global input sourcing, where the opportunity cost of complying with RoO when using NAFTA increases with firm size. We quantify our model using data on Mexican firms, RoO, and tariffs. We conduct counterfactuals that suggest a 25% increase in the strictness of RoO or a 5% tariff on all Mexican imports would result in 0.72% and 13.65% lower US exports of intermediates to Mexico, respectively. On the contrary, we quantify that removing RoO would increase these exports by 2.98%.
IMF Working Paper No. 2022/253, December 2022
Medium-term scarring of natural disasters can emerge if the immediate damage caused by an extremely large shock results in persistent disruption to production capacity. This paper uses a novel empirical approach, following the literature on hysteresis, to explore this issue for countries vulnerable to natural disasters. By quantifying the dynamic effects of natural disasters on real GDP per capita for a large number of episodes using a synthetic control approach (SCA) and focusing on severe shocks, we demonstrate that a persistently large deviation of real GDP per capita from the counterfactual trend exists five years after a severe shock in many countries. The findings highlight the importance and urgency of building ex-ante resilience to avoid scarring effects for countries prone to natural disasters, such as those in the Caribbean region.
Work in Progress
Work in Progress
We study how information spillovers, in terms of learning about other destinations when exporting, affect firms' entry and exit decisions in export markets. We provide empirical evidence on the existence of these spillovers and how firms use their export experience to make better choices when selling to foreign markets. We build a dynamic model of export supply and learning in which firms choose to which countries to export based on their beliefs about their profitability in these destinations. We quantify our model by estimating firms' export profitability and fixed costs of exporting, and conduct counterfactual simulations to evaluate the contribution of these spillovers to the diversification of export destinations. Without information spillovers, the share of Mexican firms exporting to destinations other than the US would decrease by 21.6%. We also find that lowering the fixed costs of exporting to a particular country could increase the share of firms exporting and exports to other destinations.
Global Supply Chains and Regional Shocks joint with Nadim Elayan
Global Supply Chains and Regional Shocks joint with Nadim Elayan
We explore how regional shocks affect the formation of global supply chains, recognizing the trade-off firms face when choosing the sourcing location of their inputs. On the one hand, sourcing from similar countries entails a lower risk of being exposed to regional shocks but on the other, it implies firms are less able to take advantage of the pattern of comparative advantage across the World. Using customs data on Mexican firms we document how firms weigh this trade-off, whether there is sectoral heterogeneity in this behavior, and study whether this heterogeneity is the result of sector-specific input complementarity. We build a model of global sourcing that accounts for comparative advantage being driven by geographical location and exposure to regional shocks. With our model, we explore the effects that an episode of increased regional risk, namely the COVID-19 global pandemic, had on firms’ global supply chain formation.
Firm Markups and Value-Added Rules joint with Emilio Colombi and Leticia Juarez
Firm Markups and Value-Added Rules joint with Emilio Colombi and Leticia Juarez
We study whether value-added rules induce exporting firms to charge higher markups. A significant fraction of Rules of Origin in Free Trade Agreements establish that for a firm to be able to export its products at a preferential rate, it must comply with having at least some share of value-added being generated at FTA member countries. In an environment in which markups are endogenous, firms could choose to increase their markups in order to comply with these regulations. This paper presents a tractable model of export supply, in which a firm's optimal pricing strategy is distorted by the presence of Value-Added Rules as the FTA introduces a discontinuity in firms' profits. We derive theoretical predictions for a firm's optimal price in an export market, as a function of these rules, and empirically estimate this relationship using plant-level and Rules of Origin data.
Labor Rights Enforcement and Trade Flows: Evidence from the USMCA Rapid Response Mechanism joint with Harriet Brookes Gray and Stephen Nyarko
Labor Rights Enforcement and Trade Flows: Evidence from the USMCA Rapid Response Mechanism joint with Harriet Brookes Gray and Stephen Nyarko
The Rapid Response Labor Mechanism (RRM) introduced under the USMCA agreement in 2020 is a government-to-firm mechanism that allows the US government to delay customs processing of imports from specific manufacturing plants in Mexico if there is evidence that the manufacturing plant is violating Mexican labor law. This paper explores three main questions: (i) How do trade links and volumes change for Mexican establishments directly targetted by the RRM, both to the US and worldwide? (ii) How do establishments susceptible to the RRM change their trading behavior due to the more strict regulatory environment, and (iii) How do US firms adjust their supply networks in response to increased chances of disruption from Mexican suppliers.
Trade Wars and Trade Rerouting joint with Carlos Goes
Trade Wars and Trade Rerouting joint with Carlos Goes
This paper develops a simple model of trade rerouting, in which exporters choose whether to ship goods directly to a destination market or divert them through a third-country intermediary. Rerouting introduces double marginalization, as both producers and intermediaries apply markups, leading to welfare-reducing inefficiencies. The model delivers clear predictions: when direct trade costs increase, more goods are rerouted, shifting the composition of trade flows and affecting prices and welfare. We derive closed-form expressions for the welfare effects of such changes. To test these predictions, we use Mexican customs data and exploit the sharp increase in U.S. tariffs on Chinese imports, documenting how firms adjusted their routing strategies in response. The results offer new insight into how tariff shocks reshape global trade patterns through indirect channels.
The Migration Effects of Trade Wars joint with Andrea Miranda
The Migration Effects of Trade Wars joint with Andrea Miranda
This paper examines the effects of trade policy shocks on migration flows, focusing on how the 2018 US–China trade war reshaped production and labor dynamics in Mexico. Following the imposition of higher tariffs and import restrictions on Chinese goods, some Chinese manufacturing firms might have relocated production abroad to circumvent trade barriers. Mexico represents a particularly attractive destination for such relocation due to its geographic proximity to the United States and its extensive network of free trade agreements, including USMCA. We hypothesize that this shift in production patterns led to an increase in migration flows —both managerial and labor-related— from China to Mexico. To test this hypothesis, we combine detailed Mexican customs data with official migration flow statistics to identify the extent and timing of production relocation and associated migration responses. By linking firm-level trade data to bilateral migration movements, we provide empirical evidence on how international trade conflicts can indirectly influence migration patterns through global value chain reconfiguration. Our results contribute to the growing literature on the interaction between trade shocks, production networks, and international mobility, highlighting the broader demographic and economic spillovers of trade wars.
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