This paper examines whether consumer preference proximity moderates distance-related FOB export pricing in differentiated-product trade. A well-established finding in international trade is that exporters charge higher FOB unit values in more distant destination markets. We ask whether this distance-related FOB price premium depends on the preference environment of the destination market. Using firm-level Italian customs data for cheese exports, we focus on PDO-associated CN8 cheese categories and operationalize preference proximity through culinary proximity, measured by ingredient-profile similarity between Italian cuisine and destination-country cuisines. We estimate FOB unit-value regressions with firm-product-year fixed effects, exploiting variation in unit values across destination countries within the same firm-product-year combination. We find that geographic distance is positively associated with FOB unit values, while this association is weaker in culinarily proximate markets. This pattern is consistent with a comparison-set mechanism in which culinary proximity increases perceived substitutability within the relevant comparison set and thereby attenuates the distance-related FOB price premium.
This study investigates whether the trade effects of technical barriers vary systematically with geopolitical alignment between trading partners. Combining bilateral trade data from the BACI database (1995 to 2023), the World Trade Organization’s Specific Trade Concerns (STC) database, and United Nations General Assembly voting records, the analysis employs structural gravity models estimated via Poisson pseudo-maximum likelihood with high-dimensional fixed effects. The direct effect of STCs on bilateral trade is small and statistically insignificant, while the interaction between STCs and political distance is negative and statistically significant: STC filings become more trade restrictive as political distance rises. A leave-one-out exercise around the world’s five largest goods-trading economies locates the identifying variation in pairs involving the United States; dropping the United States reverses the sign of the interaction, while dropping other major economies individually leaves the negative sign in place. The decomposition by measure type indicates that the politicization channel is carried primarily by technical barriers to trade (TBT) rather than by sanitary and phytosanitary (SPS) measures, and a chapter-by-chapter dispersion exercise across the HS 2-digit level reproduces this pattern at fine disaggregation. The conditional channel persists throughout the 1995 to 2023 sample window. The findings are interpreted as consistent with differential application of contested technical measures at the implementation stage rather than with discriminatory adoption of the measures themselves.
We analyze how industry-level information asymmetry affects firms’ strategic behavior and welfare in an import-competing differentiated duopoly with uncertain demand. The domestic firm observes realized demand, whereas the foreign firm makes its market decision based on expected demand. Under Cournot competition, incomplete information raises the domestic firm’s expected producer surplus but lowers expected consumer surplus. Consequently, expected domestic welfare rises only when products are sufficiently close substitutes, whereas expected foreign and global welfare always falls. Under Bertrand competition, incomplete information lowers the domestic firm’s expected producer surplus but raises expected consumer surplus. The gain in consumer surplus dominates, so expected domestic welfare always rises, whereas expected foreign welfare falls. Expected global welfare rises when products are sufficiently differentiated but falls when they are sufficiently close substitutes.
What determines the success or failure of economic sanctions? Theoretical research emphasizes the anticipated costs to both sender and receiver countries, but empirical findings remain inconclusive. This study introduces a novel measure of sanction costs by developing a bilateral reliance metric, which quantifies the welfare losses incurred when trade ties are severed. The metric is derived from an international trade model incorporating multiple sectors, sector-specific trade elasticities, and intermediate production networks. Results show that while the absolute magnitude of bilateral reliance depends on the complexity of the trade model, its changes over time remain stable. Empirically, I find little evidence that the economic costs to the receiver country influence sanction success. However, there is suggestive evidence that lower costs to the sender increase the likelihood of success—a finding that holds across different model specifications, samples, and databases.
This paper shows that firms can substantially reduce their intermediate input expenditures by participating in dense local input-buyer networks. Using detailed administrative data, we construct a measure of buyer-network density based on the number of nearby firms sourcing the same locally produced and imported inputs and document that stronger networks consistently lower input costs, while leaving revenues and productivity unchanged. To explain this pattern, we develop a theoretical framework in which network participation reduces fixed input requirements through knowledge spillovers among buyers. A key prediction is that potential revenue effects depend on the cost of benefiting from the network. Using product-level information on relationship specificity, we confirm that network expansion raises domestic revenues only for relationship-intensive products, where knowledge transmission is more effective.
Following the intensification of the conflict in Syria in 2012, the number of Syrian refugees in Turkey has reached to 3.7 million as of 2021, according to the Turkish Directorate General for Migration Management. Syrian refugees have become an important source of informal employment, as almost 2 million Syrians are of working age. Therefore, this large flow of immigrants has had major impacts on the dynamics of the labor market through the abundance of largely unskilled labor. This paper provides evidence on the impact of this massive refugee inflow, resulting from the changes in labor markets, on firm-level total sales and domestic sales using a comprehensive firm-level data and city-level immigration density measures. Our results suggest that firms in cities with greater immigrant penetration saw increasing sales, mostly in labour-intensive firms.
This paper studies the macrodynamics between unemployment and capital accumulation in a developing economy. It presents a two-sector small open economy model in which labor and capital are gross complements, and wages are institutionally determined. The model yields an equilibrium unemployment rate bound up with the economy’s capital intensity and identifies channels through which capital formation reduces unemployment. Under constant returns to scale, the system admits a unique, locally stable steady state. Introducing capital-driven technological externalities in the formal sector generates non-monotonicities in the profit rate’s response to capital, yielding multiple steady states. Monetary policy affects the real exchange rate through interest-rate differentials and capital mobility. A phase-diagram analysis shows that interest-rate-induced overvaluations reduce tradable-sector profitability and can push the economy into a high-unemployment, low-capital trap. Empirically, we assess the quantitative implications of the model using quarterly data for Colombia (1994–2023) employing a threshold vector autoregression model with regime switching governed by real exchange rate misalignment. We find that capital accumulation is considerably more effective in reducing unemployment during periods of real exchange rate undervaluation. In contrast, overvaluation renders capital shocks largely ineffective. These findings suggest that monetary policy frameworks that systematically overvalue the real exchange rate may undermine employment goals even while they achieve inflation targets.
In this paper, we study the impact of exchange rate movements on aggregate retail sector sales and prices in a small open economy, and quantify the role of retail imports in transmitting exchange rate changes to these aggregate outcomes. We develop a model where exchange rate appreciations lower the cost of imported goods, but also lead to more cross-border shopping by consumers; hence, the net impact on aggregate retail sales and prices is ambiguous. We then estimate the model-implied exchange rate elasticities of aggregate retail sales and prices using firm- and industry-level data from Canada. Our results indicate a deflationary effect of appreciations on retail prices and a near zero effect on retail sales partly due to counteracting forces. From 2002 to 2012, the CAD appreciated by 57
This paper explores the evolution of global value chains (GVCs) from 1995 to 2020 to assess the changes that have taken place during the last decades. Using country-sector data from the OECD’s TiVA database, we apply network techniques and graph theory to characterize the structure of the GVC network. We are interested in comparing the network at different moments in time to assess how its structure has evolved, and which countries and sectors, and how, participate in the network. To do so, we compute centrality metrics to identify countries and country-sectors’ position within these global production networks. Using the weighted hyperlink-induced topic search (HITS) algorithm, we identify key hubs and authorities in the GVC network: a hub is relevant supplier that is connected with relevant buyers, while an authority is a relevant buyer which is itself connected with relevant suppliers. Additionally, we also examine if the position of country-sectors in the GVC network matters: we conduct panel regressions to assess if network centrality has an impact on upgrading in GVCs, as measured by changes in the domestic value-added content of gross exports. Our results suggest that centrality plays an important role, especially as a buyer: according to our estimates, a one standard deviation increase in a country-sector’s authority score is associated with an increase in the rate of growth of domestic value added embodied in exports of 0.52 percentage points, whereas the same increase in the hub score boosts domestic value added in exports by 0.29 pp. Being well connected to the sources of value-added seems to play a more important role in benefiting from GVC participation.
Bank liquidity creation, that is, the process by which banks transform short term funding into longer term loans, is a key function of financial intermediation that supports economic activity. Over recent decades, however, banks have substantially expanded their off-balance-sheet activities, particularly through derivatives, raising questions about how this shift affects their ability to create liquidity on the balance sheet. This paper investigates whether greater off-balance-sheet exposure is associated with changes in on-balance liquidity creation, with a focus on foreign operations of global banks. Using a dataset on foreign branches of US banks, we show that higher off-balance-sheet exposure is associated with lower on-balance liquidity creation. Furthermore, this trade-off is found to be more pronounced in those host countries with tighter credit market regulations. These findings have implications for host-country policymakers because substitution toward off-balance-sheet intermediation may weaken local credit supply, complicating efforts to preserve domestic financial stability.
A standard assumption in models of cross-border mergers and acquisitions (M As) is that highly productive acquirers transfer their productivity level to that of the less productive target. However, our stylized evidence suggests that this is not the case and that the post-merger firm productivity is lower than that of the most productive firm in the M A. It is an average of the pre-merger productivity levels of both firms. Furthermore, the data also show that M As also take place among firms that are not the most productive in the market. These observations raise the question under what circumstances M As become profitable. Based on the Melitz (Econometrica 71(6):1695–1725, 2003) approach, we develop a model of cross-border M As that permits imperfect productivity transfers between merging firms. With imperfect transfers, (weak) assortative matching in productivity arises for firms in cross-border M As, without strict productivity ordering. The model rationalizes that M As occur both in the high- and low-productivity ranges of the market. M As raise the overall average productivity and welfare. However, the welfare benefits are small(er) if productivity transfers are less than perfect.
This study examines how exchange rate pass-through (ERPT) varies across manufacturing sectors and which structural factors account for this heterogeneity over time. As a first step, the study constructs sector-level nominal effective exchange rate indices, generating a unique dataset that allows exchange rate movements to be matched directly to sector-specific trade structures. Using these indices, ERPT is estimated for Turkish manufacturing industries within a heterogeneous panel data framework. To enable systemic cross-sector comparison, a relative pass-through measure is developed that benchmarks each sector’s ERPT against the manufacturing sector average. The analysis further explores the role of key structural characteristics—including trade openness, productivity, and global value chain participation—in shaping sectoral ERPT dynamics. The empirical results reveal significant disparities in pass-through across sectors, with persistent differences in sensitivity of exchange rate fluctuations. Structural determinants exhibit asymmetric effects: higher trade openness and deeper productivity tends to dampen ERPT. These findings highlights the importance of sector-specific characteristics for inflation dynamics and offer valuable policy insights for monetary and trade policy design.
Fiscal rules are designed to enhance fiscal discipline and macroeconomic stability, but their influence on investments remains inconclusive in the literature. This study investigates the existence of nonlinear effects of the number of fiscal rules adopted on aggregate, public and private investment. This nonlinearity is expressed through an inverted U-shaped relationship between the number of fiscal rules adopted and investment, suggesting that the adoption of fiscal rules may be beneficial to investment, while their excessive proliferation may reduce investment. Special attention is given to developing countries, which often exhibit lower levels of fiscal responsibility and are more sensitive to the constraints and incentives created by fiscal rules. The study explores whether excessive adoption of such rules may hinder investment. The study also analyzes public investment as a mechanism for transmitting the impact of fiscal rules on private investment. The study uses a database composed of 105 countries (70 developing countries and 35 developed countries) from 1990 to 2021. Estimates for the full sample and the sample of developing countries, as well as for aggregate, private and public investment reveal the existence of an inverted U-shaped relationship between the number of fiscal rules and investment. By identifying a structural nonlinear relationship, the study contributes to a deeper understanding of how fiscal rules affect investment. The findings offer insights for designing balanced and effective fiscal frameworks.
This study investigates the impact of foreign direct investment (FDI) entry on the low-carbon transition of the global supply chain (GSC) in China. We proxy for the global carbon footprint by estimating the carbon emission intensity embedded in firms’ GSCs. Using a difference in differences approach that exploits adjustments to the FDI Catalogue as a quasi-natural experiment, we find that FDI entry reduces the global carbon footprint of domestic firms. We also observe that foreign firms exhibit lower trade-induced carbon emission intensity than domestic firms do, which supports the pollution halo hypothesis. This study contributes to FDI spillovers by exploring the supply chain sharing mechanism linked to the variety, quality, and origin of intermediate imports and the technology spillover channel associated with green innovation and green product development. FDI spillovers also occur through vertical connections between industries. Moreover, although the exit of foreign-owned enterprises weakens the spillover effects of FDI entry, their conversion to domestic ownership strengthens these effects.
Could the BRICS countries have formed a sustainable economic and monetary union (EMU) if they had decided to do so in the early 2000s? Our sustainability criterion is that the macroeconomic imbalances of the countries should not deviate too far from each other. We consider a convergence-based approach to quantify such a situation. We investigate a scenario where each country’s bilateral nominal exchange rate is defined in relation to a central rate defined by considering a basket of the various BRICS national currencies. We find that the group would not have formed a sustainable EMU from the late 2000s onwards. We conclude that this makes the project of de-dollarizing their respective economies not necessarily viable, unless the group chooses a proper exchange rate regime.
The theoretical models suggest that including import intensity and invoicing ratios in the exchange rate pass-through regression is essential. We suggest distinguishing the value-added by importers and other countries for the import intensity, and using bilateral invoicing ratios. By examining 33 exporting and 13 importing countries for 17 industries between 1995 and 2018, our results show that exchange rate pass-through decreases for industries with a higher contribution of the other country’s value-added. We find that a higher US dollar invoicing ratio decreases the exchange rate pass-through when we apply bilateral invoicing ratios in the subsample of countries or industries.
Amid burgeoning global population growth, the integration of Voluntary Sustainability Standards (VSS), into the global food system has become increasingly prominent. This paper examines the relationship between the adoption of VSS and product quality upgrading, gauged by a country’s export market share in the importers’ markets. We develop a theoretical framework to assess the impact of VSS certification on food prices and demand in both domestic and foreign markets. The findings indicate that VSS-certified products not only correlate positively with increased exports but also enhance importers’ consumption of domestic VSS-certified products. Our empirics investigate the correlation between VSS proliferation and product quality upgrading. The results demonstrate variability in the impact of VSS on quality differentiation. Specifically, voluntary standards that emphasize quality significantly improve upgrading for countries far from the world frontier. Additionally, for highly differentiated products, the implementation of more non-compliance requirements proves to be an effective strategy to increase market share in markets with strong domestic demand. However, VSS focused on environmental and social concerns are less associated with quality upgrading. Introducing optional requirements could offer policymakers a strategic tool to enhance the competitive edge of exporters in diverse markets.
This study examines the impact of Non-Tariff Measures (NTMs) on agricultural Global Value Chain (GVC) trade using a quasi-experimental approach. The objective is twofold. First, it seeks to test and identify the presence of self-selection and non-linearities in the relationship between NTMs and GVC trade and to address these issues methodologically. Second, it aims to demonstrate that NTMs influence agricultural GVC trade not only through a direct effect on the affected country but also via an indirect impact, both on the imposing country and on all partners involved in GVC linkages, creating a "chain effect". Using a panel dataset on distinct types of NTMs and trade in value-added rather than gross trade across 172 countries, with a focus on agriculture, the analysis reveals that NTMs significantly affect GVC trade. Most NTMs generally hinder agricultural trade, particularly at both low and high levels of intensity, as observed with technical barriers and sanitary measures. Other NTMs have a positive impact at low intensity, which becomes negative as intensity increases. The study further underscores the non-linear nature of this relationship, emphasizing the need to account for self-selection, heterogeneity, and intensity of NTMs to refine estimates of their effects. These findings also inform policy discussions on the suitability of adopting such measures and their potential unintended consequences.
This paper studies how export participation influences firm-provided training, a key but understudied channel of human capital accumulation. Using firm-level data for over 100 countries, I document that exporters are more likely to train their workers than non-exporters. To assess causality, I exploit industry-level exchange rate shocks and find that real appreciations, especially those heightening import competition, lead to more firms entering export markets and providing training. These patterns are consistent with a heterogeneous-firm model in which exporting and training are complementary due to higher export revenues and productivity gains from training investments. By reallocating sales toward the most productive producers, import competition leads to more firms finding it profitable to export and provide training. These findings highlight a novel mechanism through which trade openness promotes firm-level productivity and skill formation.
