Working Papers

Abstract: Understanding how exchange rate fluctuations transmit to domestic prices is central to debates on inflation stabilization, trade competitiveness, and monetary policy autonomy. Yet existing research faces a critical constraint: the inability to measure firm-level exchange rate pass- through (ERPT) across countries without proprietary price data. We resolve this by developing a methodology that estimates ERPT to firm-level domestic prices without observing price data. Instead, we use a theoretical framework for price-over-cost markup dynamics, leveraging widely available firm financial statements. This innovation allows us to analyze 2.5 million firms across 47 countries (1995–2022), including emerging markets typically excluded due to data scarcity. Three findings stand out.
First, multinational firms reduce ERPT by 30–50% compared to domestic peers, demonstrating how global production networks and currency hedging insulate prices—a result with implications for industrial organization and international business. Second, financial openness amplifies ERPT by 8–21 percentage points in emerging markets, challenging assumptions about capital mobility’s stabilizing role. Third, independent central banks with inflation-targeting regimes suppress ERPT by more than 60%, underscoring the credibility of monetary policy in anchoring expectations. However, central bank-induced reductions in ERPT are offset by increased financial openness. Methodologically, we validate our approach against product-level price studies, showing that markup-based estimates closely match gold-standard microdata. By bridging firm heterogeneity and macroeconomic outcomes, this work provides a scalable framework to study international transmission mechanisms in data-constrained environments, with urgent policy relevance for managing inflation in an era of dollar dominance and fragmented supply chains. JEL: F31, F38, F23, E31, E52, L11. 【Open access, get PDF version】

Abstract: We investigate the relationship between manufacturing sector productivity and two new measures proxying for barriers to trade in services – restrictions affecting payment for cross-border imports of services and receipts for inward investment. Our services trade policy proxies span the 1965-2018 period, a much longer time span than extant services trade restrictiveness indicators, allowing analysis of the pre-hyper globalization period as well as the post-global financial crisis years that has been the focus of the services trade literature. We find that (i) lower restrictions on services trade and cross-border investment are associated with higher productivity in manufacturing industries that rely more intensely on service inputs; and (ii) that international services payment restrictions and inward investment restrictions are complements: manufacturing productivity is higher when both are simultaneously liberalized. The relationship between international payment restrictions and manufacturing sector performance is heterogenous, varying across time and countries with differing per capita incomes and governance quality. JEL:F13, F15, F21, F23, L60, L80. Access via CEPR

Abstract: Countries do not directly trade. Firms do. Multinational firms (MNCs) account for most of the value of global imports and exports. How do MNC trade and investment behaviors in emerging markets affect electoral outcomes in advanced economies? To address this question, we examine the ownership structure of U.S.-China trade. We use two limited-access datasets, including data on the universe of transactions of Chinese trade with the rest of the world between 2000 and 2006. Most of China’s trade with the U.S. and other developed markets is undertaken by a small number of non-Chinese MNCs. Using a new identification strategy – “instrumenting outside the value chain” – we find that the adverse employment effects of the Autor, Dorn, and Hansen (2013) “China Shock” are driven by non-Chinese MNC imports and not by ‘indigenous’ Chinese firms. We also find related party MNC imports from China are associated with U.S. plant closures, but non-related party imports are not. In regions with high levels of exposure to MNC imports from China, incumbent U.S. Presidents or their parties suffered substantial vote share losses in two election samples: 2000-8 using Chinese data and 1996 to 2024 using U.S. Census data. In comparison, exposure to high levels of non-MNC imports from China had, if anything, positive benefits for incumbents. We find little to no partisanship effect – incumbents from both parties suffer vote losses in areas exposed to high levels of MNC imports from China. MNC activities in international trade can affect electoral outcomes in advanced economies. JEL: D72; F15; F23; P16.

Abstract: From the beginning of the Bretton Woods systems, capital controls – that is, restrictions on the free movement of capital in and out a country or territory – were reserved as a policy choice for domestic governments rather than subject to international agreements. While the international legal system did not, and largely still does not, provide a global international regulatory framework for capital flows analogous to trade flows, Bilateral Investment Treaties (BITs) have become a significant feature of international investment governance. We explore the relationship between the openness of a country’s capital accounts and the presence or absence of BITs in promoting or hindering the flow of foreign direct investment. We argue that BITs and domestic capital account policies interact with FDI inflows. BITs largely guarantee investors against expropriation, transfer restrictions, and denial of ‘national treatment’ for foreign investors on existing investments. BITs do not, however, generally contain provisions enabling investors to invest freely in all sectors of a country in the first place – freer exit but not freer entry is liberalized and adjudicated in most BIT arrangements. Hence, two facets of capital account policies will affect the utility of BITs in inducing inward FDI. A BIT will have limited option value in national settings where capital exit is freely allowed by capital outflow liberalization. It is where capital inflows are relatively free but where outflows are restricted (or where there is a threat of future restriction) that BITs are likely to induce higher FDI flows. BITs serve, therefore, as an escape tunnel option against either current outflow restrictions or future outflow restrictions. It is not countries with open markets that benefit from a BIT, but countries that practice financial repression of capital outflows. We provide empirical evidence for our main hypotheses using both monadic and dyadic FDI flow data. We find the investment-inducing effects of BITs are limited to firms from BIT signatory countries. We find no evidence for the “BIT-signaling” hypothesis. 【Open access, get PDF version】

Abstract: Although an important development modelsuggeststhat FDI liberalization will increase growth, liberal policies have not always produced high growth rates. How do we explain the varied economic performance of countries following liberalization to FDI? We argue that FDI liberalization improvesthe efficiency of domestic firms and increases consumer surplus. Liberalization also reduces domestic producer surplus as less productive domestic firms exit the market. Because the consumer benefits overwhelm the domestic producer costs, markets with many unproductive firms have the most to gain from FDI entry. In contrast, FDI entry has little effect in those markets that were already productive. We further argue that because democratic institutions provide contract enforcement and constraints on executive authority, democratic countries have more competitive markets and more productive firms and consequently experience smaller gainsfrom FDI entry. Drawing on cross-national data, we show that FDI entry increases growth in countries with unproductive markets. As markets become more productive, the benefits associated with FDI entry diminish and eventually are statistically indistinguishable from zero.

Abstract: We assemble two unique databases. One is on reforms in domestic finance, external finance, trade, product markets and labor markets, which covers 90 advanced and developing economies from 1973 to 2014. The other is on electoral results and timing of elections. In the 66 democracies considered in the paper, we show that liberalizing reforms engender benefits for the economy, but they materialize only gradually over time. Partly because of this delayed effect, and possibly because voters are impatient or do not anticipate future benefits, liberalizing reforms are costly to incumbents when implemented close to elections. We also find that the electoral effects depend on the state of the economy at the time of reform: reforms are penalized during contractions; liberalizing reforms undertaken in expansions are often rewarded. Voters seem to attribute current economic conditions to the reforms without fully internalizing the delay that it takes for reforms to bear fruit. 【Open access, get PDF version】

Abstract: We develop intensity indicators of the regulation by countries of five elements of their capital account: foreign direct investment, portfolio investment, bonds and other debt securities, money markets, and financial credits/bank loans. We distinguish between restrictions on residents and nonresidents. The sample will be 60 countries, 1975-2014. Inward FDI equity restrictions continue to be a prevalent form of restriction. In contrast, foreign bank borrowing by residents has been increasingly liberalized, the potential perils of an externally-determined financial crisis notwithstanding.

Abstract: Trade integration has benefited some American workers, especially in high-skill tradable services, but harmed others, particularly those in low-skill manufacturing. We use publicly available data to estimate the effects of exposure to international trade on voting in U.S. presidential elections from 1992 to 2016. Exploiting variation in industrial composition and exposure to international trade across U.S. counties, we estimate county-level incumbent/challenger models with unit and time fixed effects and standard demographic controls. We find that counties with more low- wage manufacturing (high-wage tradable services) workers were more likely to support challengers (incumbent-party nominees), especially in swing states (non-swing states), including in 2016. Trade
exposure produces concentrated winners and losers, and voting patterns in presidential elections reflect this cleavage. In general, the estimated results of the 2016 election regarding trade are very similar to the results of prior elections.

Abstract: This article explores an anomaly in the timing of fiscal revisions among Organization for Economic Co-operation and Development (OECD) countries. Before an election, many governments report levels of government spending and taxation that are revised upward after the election, often by 1 per cent or more of GDP. This study proposes two mechanisms to explain this anomaly: (1) the median voter is not the median taxpayer, therefore the median voter benefits from the unannounced surges in joint spending and taxation and (2) governments seek to appear to be competent in delivering government services at lower cost. Using real-time fiscal policy data for twenty-six OECD countries covering 1997–2016, the authors find support for both hypotheses. Notably, governments in highly polarized societies spend and tax more than reported before an election, which confirms the hypothesis that they engage in a hidden form of political budget cycle manipulation. JEL: D72; E62; H6; H83; P16.

Abstract: This paper analyzes the extent to which the degree of international economic integration, both financial and trade, affects corporate tax rates. It explores this issue in the context of strategic behavior by countries, taking into account other global and domestic political economy factors. Tax rates are analyzed using a unique tax dataset for advanced and developing economies extending over five decades. We report a number of novel results: there is no general negative relationship between financial globalization and corporate tax rates and revenues—results vary according to country grouping with OECD countries showing a positive relationship; the United States exhibits a “Stackelberg” type of leadership on other countries; trade integration is inversely correlated with tax rates; and public sentiment and ideology affect tax rates. The policy implications of these findings, particularly given budgetary pressures in the aftermath of the global crisis, are noted. JEL: F2; F41; F59; H25. 【Open access, get PDF version】