We explore how importing of intermediate goods affects the carbon intensity of firms in the Swedish manufacturing sector. By exploiting exogenous shocks to foreign export supply of intermediate goods, we estimate that a 10 percent increase in imports causes a 5.6 percent reduction in carbon intensity. Average carbon intensity among the firms in our sample between 2004 and 2016 decreased by around 50 percent, and our results suggest that import growth accounted for about a third of this decline. Exploring the mechanisms, we find evidence for both a technique effect and a product composition effect. Importing has a positive impact on productivity, scale of production, and abatement investments. It also encourages firms to focus more on their core products. We find no evidence for a pollution haven effect.

This comprehensive report delves into the economic policy responses of the Nordic countries amidst the tumultuous period marked by the COVID-19 pandemic, the subsequent recovery phase, the energy crisis, and inflation spanning from 2020 to 2023. It provides a critical examination of the macroeconomic strategies employed during these challenging times, highlighting the lessons learned and the effectiveness of different policies. The report raises pivotal questions regarding the outcomes of these policies, their impact on the Nordic economies, and the lessons that these countries can glean from each other's experiences. Key Findings and Highlights: Fiscal Support Measures: The report evaluates the unprecedented fiscal support measures implemented by the Nordic countries during the pandemic. It discusses how these measures, while stabilizing the economies, resulted in overgenerous subsidies to firms, indicating areas for future refinement. Job Retention Schemes: An analysis of job retention schemes reveals their critical role in preserving employment during the pandemic. The report suggests that while effective, these schemes should be designed to avoid hindering necessary structural changes within the economies. Fiscal Policy Challenges: The need for fiscal policies that can stabilize the business cycle, provide household income loss insurance, allow for public investment, and address the needs of an ageing population is emphasized. It argues for debt financing beyond current limits to meet urgent investment needs. Energy Crisis and Green Transition: The energy crisis is examined as a case study in balancing immediate relief with long-term sustainability goals. The report discusses the importance of allowing price mechanisms to encourage the green transition while providing timely support to consumers and businesses. Overall the report underscores the importance of policy adaptability, advocating for economic policies that can swiftly respond to unforeseen crises without compromising long-term fiscal sustainability. It calls for targeted support measures that aid vulnerable households and firms during economic downturns without impeding structural adjustments. Furthermore, it emphasizes the necessity for adequate resources towards active labour market policies, including vocational training and subsidized employment. Facing intricate trade-offs between maintaining robust economic policy frameworks and adapting to new challenges, the Nordic countries stand at a crossroads. The report advocates for a vibrant exchange of policy insights and impacts, stressing the need for adaptable, targeted, and well-resourced economic policies. This report is essential reading for policymakers, economists, and anyone interested in the complexities of economic policy-making in the face of multiple crises. It offers a thorough analysis of the Nordic experience, providing valuable lessons for both the region and beyond.

If large firms employ relatively more educated workers, will an increase in market concentration increase income inequality by raising the relative demand for skill? I use Swedish employer-employee data from 1997-2016 and find a strong correlation between firm size and the share of college-educated ('skilled') workers. An increase in a sector's market concentration is correlated with a higher skilled wage premium and higher relative employment of skilled workers. This is due mainly to the reallocation of workers across firms. I demonstrate how these findings can be explained by a model of heterogeneous firms where productivity and skill intensity are positively correlated.

Using highly granular micro data, we document very divergent economic effects of the COVID-19 pandemic on Swedish private-sector firms and their workers. Firms that exported to, or imported from, heavily afflicted countries reduced their output due to disrupted trade. Service firms that operated in locations with many infections reduced their output due to falling local consumption, despite very limited regional restrictions. Workers at the bottom of each social gradient – defined by education, earnings or ethnicity – took a twofold hit: their employers faced the largest output drops and they experienced the largest transmissions from firm output to earnings.

We show theoretically and empirically that standard methods give downward biased estimates of productivity growth if technical change is factor-biased. We show how to correct for this bias and construct more reliable measures of the productivity gains from technical progress. We consider two empirical applications, one where the source of technical progress is unobserved, and a second where the source can be directly measured. In the first application, we use the frequently applied NBER-CES productivity database for the United States over the years 1958–2011. The bias is especially large in the last decade, making our finding relevant for the discussion on the slowdown in US productivity growth since 2000. In the second application, we study the adoption of broadband internet in Norwegian firms in the early 2000s. We have plausibly exogenous variation in the availability and adoption of broadband internet by firms. In both applications, we find that the factor-biased nature of technological progress, if ignored, leads to the erroneous conclusion of only modest productivity gains from adopting new technology when the actual gains are in fact considerable.

We examine how the adoption of information communication technology affects bilateral trade. The context is a public program in Norway that rolled out broadband access points leading to plausibly exogenous variation in the availability and adoption of broadband by firms. We find that broadband makes trade patterns more sensitive to distance and economic size. These results are consistent with a model of trade with variable elasticity of demand. The model predicts that adoption of a technology that lowers information frictions enlarges the choice set of exporters and importers. This makes demand more elastic with respect to trade costs and thus distance. (JEL D83, F14, L86, O33)

This paper offers a theoretical foundation for the existence of wholesalers and other intermediaries in international trade and analyzes their role in an economy with heterogeneous manufacturing firms and fixed costs of exporting. Wholesalers are assumed to possess a technology such that they can buy manufacturing goods domestically and sell in foreign markets and they can, unlike manufacturers, export more than one good. A wholesaler therefore faces an additional fixed cost, which increases in the number of goods it handles. The presence of wholesale firms leads to productivity sorting. The most productive firms export on their own by paying a fixed cost, but a range of firms with intermediate productivity levels export through international wholesalers. A higher fixed cost of exporting to a destination means that wholesalers handle: (i) a higher share of total export volumes to this destination and (ii) a higher share of the exported product scope (i.e., the number of exported products) to this destination. A higher fixed cost of exporting gives wholesalers a larger role, since these can spread the fixed cost across more than one good. The wholesale technology therefore exhibits economies of scope. An empirical analysis using Swedish firm-level data supports the main assumption and predictions of the model.

This paper studies how comparative advantage and the political elites' endowments shape long‐run performance in economies with imperfect political institutions. The trade regime interacts with industrial policy and regulations on capital mobility in governing capital accumulation. In a capital‐scarce economy, capitalist oligarchs striving for import substitution industrialization (ISI) initially shelter the economy from trade, while promoting industrial policies that promote total factor productivity growth in the manufacturing sector. This gradually shifts the comparative advantage toward manufacturing and renders the economy attractive to foreign investors. Allowing for trade and foreign capital inflows are thus complementary policies that spur growth in the capital oligarchy. By contrast, landed oligarchs in a capital‐scarce economy favor openness to trade at an early stage of development, neglect industrial policies, and block foreign capital to maximize extractable rents. The policy mix causes the economy to stagnate. Consistent with the experiences of South Korea and Argentina in the postwar era, the model predicts that the success of ISI policies depends crucially on the conditions governing the incentives for capital accumulation. (JEL F10, F20, P40, P50, O10, O24)

Page 1. No. 524 THE QUAR T E RLY JO U RNAL OF EC ONO MICS November 2015 THE QUARTERLY JOURNAL OF ECONOMICS FOUNDED 1886 ARTICLES ERIC BUDISH, PETER CRAMTON, AND JOHN SHIM The High-Frequency Trading Arms Race: Frequent Batch Auctions as a Market Design Response 1547 KATHERINE BAICKER, SENDHIL MULLAINATHAN, AND JOSHUA SCHWARTZSTEIN Behavioral Hazard in Health Insurance 1623 BART J. BRONNENBERG, JEAN-PIERRE DUBÉ, MATTHEW GENTZKOW, AND JESSE M. SHAPIRO Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium 1669 MARK AGUIAR, MANUEL AMADOR, EMMANUEL FARHI, AND GITA GOPINATH Coordination and Crisis in Monetary Unions 1727 ANDERS AKERMAN, INGVIL GAARDER, AND MAGNE MOGSTAD The Skill Complementarity of Broadband Internet 1781 …

Does adoption of broadband internet in firms enhance labor productivity and increase wages? And is this technological change skill biased or factor neutral? We exploit rich Norwegian data with firm-level information on value added, factor inputs and broadband adoption to answer these questions. We estimate production functions where firms can change their technology by adopting broadband internet. A public program with limited funding rolled out broadband access points, and provides plausibly exogenous variation of broadband adoption in firms. This enables us to address endogeneity of broadband adoption and examine how it shifts the production technology and changes the productivity and labor outcomes of different types of workers. We find that broadband adoption favors skilled labor by increasing its relative productivity. The increase in productivity of skilled labor is especially large for college graduates in fields such as science, technology, engineering and business. By comparison, broadband internet is a substitute for workers without high school diploma, lowering their marginal productivity. Consistent with the estimated changes in labor productivity, wage regressions show the expansion of broadband internet improves (worsens) the labor outcomes of skilled (unskilled) workers. We explore several possible explanations for the skill bias of broadband internet. We find suggestive evidence that broadband internet complements skilled workers in executing nonroutine abstract tasks, and substitutes for unskilled workers in performing routine tasks. When we use our production function estimates to construct measures of firm level productivity, we find that broadband internet accounts for a few percent of the standard deviation in total factor productivity across firms. Taken together, our findings have important implications for the ongoing policy debate over government investment in broadband infrastructure to encourage productivity and wage growth.

Firms increasingly engage in task outsourcing. This form of outsourcing has the potential to raise aggregate productivity by facilitating the division of labor between firms. In this paper, we develop a model of trade in tasks in which the task scope of manufacturers and service providers is endogenous. In order to produce one unit of good, manufacturers have to perform a fixed range of tasks. However, they can outsource some tasks to service providers, which do not produce any good and cannot outsource, but have the possibility to sell tasks to dierent manufacturers. Our key assumption is that the marginal cost of producing a given task is an increasing function of the number and heterogeneity of tasks performed in-house both for manufacturers and service providers. The manufacturer’s decision to outsource thus involves a trade-o between the eciency gains stemming from its specialization in terms of task scope and the cost of contracting with specialized service providers in an imperfect contracting environment. The model generates gains from larger market size through a specialization eect: aggregate productivity rises, manufacturers are more specialized, service providers are more specialized and their relative number increases. We use detailed Swedish data on the number of occupations performed by workers to test these predictions. We find strong evidence that manufacturers perform fewer tasks in-house in larger cities and some evidence for the same among service providers.

We use a unique data set on international arms trade 1950-2007 to characterise patterns in global arms trade. We are ultimately interested in whether arms trade can serve as a useful measure of the strength of international relations. Using tools from social network theory, we are able to identify networks in arms trade and study their evolution over time.

This paper models the market entry cost of exporters as dependent on the size of the export market as well as on sector specific factors. We introduce these features in a Melitz trade model with heterogeneous firms. The predictions of our model are tested using Swedish and Japanese firm level data. We find that sector level advertising or sales promotion intensity is an important component of the market entry cost. A larger market size, if anything, lowers entry costs.

Recent theories of firm heterogeneity emphasize between-firm wage differences as a new mechanism through which trade can affect wage inequality. Using linked employer-employee data for Sweden, we show that many of the stylized facts about wage inequality found in Helpman et al. (2012) for Brazil also hold for Sweden. Much of overall wage inequality arises within sector-occupations and for workers with similar observable characteristics. One notable difference is a smaller contribution from between-firm differences in wages in Sweden, which could reflect the influence of Swedish labor market institutions in dampening the scope for variation in wages between firms through collective wage agreements.

This paper studies how comparative advantage and the political elites' endowments shape long-run performance in an economy with imperfect political institutions. In a capital-scarce economy, an autocrat catering to the needs of landowners favours openness to trade at an early stage of development, while an autocrat complying with the preferences of capitalists chooses to shelter the economy from trade. The trade regime interacts with economic institutions, and with policies on capital mobility, to govern capital accumulation. A landed autocrat neglects to improve institutions and blocks foreign capital to maximize extractable rents, leading the economy towards stagnation. By contrast, a capitalist autocrat strengthens institutions, which promotes manufacturing TFP growth, gradually shifts the comparative advantage towards manufacturing and renders the economy attractive to foreign investors. Allowing for trade and foreign capital inflows are thus complementary policies that provide an environment of growth and development in the capital autocracy.

Firms outsource an increasing range of service activities to independent suppliers which tend to be specialized in providing a given service. This new form of outsourcing has the potential to raise aggregate productivity by allowing the “division of labour between firms”. We develop a model of outsourcing and trade in service inputs where the scope of tasks produced by both manufacturing firms and service providers is endogeneous. Manufacturing firms have to perform a fixed set of tasks in order to produce their final good but can decide to outsource some of these tasks to service providers, which, contrary to manufacturers, have the possibility to sell tasks to different manufacturers and thereby benefit from economies of scale in their task production. The key assumption is that the marginal cost of a firm (manufacturer or service provider) increases in the scope of tasks performed inside the firm: a firm which specializes in a narrow scope of tasks is more productive. Working against this incentive to produce as few tasks as possible “inhouse” is a fixed cost paid by each firm. The model yields several new predictions about trade liberalization and welfare as measured by aggregate productivity. An increase in the size of an economy raises the scale of all firms, facilitates greater specialization and therefore raises each firm’s productivity. The model therefore generates gains from trade or larger market size through a “specialization effect” as opposed to the classical “variety effect” usually generated by models building on Dixit Stiglitz utility structures. Detailed Swedish data on what tasks (or occupations) are performed by workers is used to test this prediction. Indeed, we find that manufacturing firms in larger cities (controlling for firm size) perform fewer tasks inhouse than firms in smaller cities.

This paper provides a rationale for the common use of Export Processing Zones (EPZs) in third world countries, as an alternative to liberalising foreign trade for all regions. I use a model from the “new economic geography” literature with vertically linked industries to analyse the e¤ect of an EPZ policy on the location of industry; vertical linkages are important in EPZs since its industry is typically characterised by the assembly of intermediate goods. Industry location is very sensitive to di¤erences in country size and the possibility of multiple equilibria disappears even at small size asymmetries in the relative size of countries. Therefore, a small country can lose industry when liberalising trade with a larger trading partner. On the other hand, if mutual trade costs are only reduced between the EPZ part of the Home country and the Foreign country, the EPZ turns into a so-called “hub” and the centre of downstream manufacturing. Upstream production locates in the rest of the Home country outside the EPZ. Industry becomes segregated rather than agglomerated; upstream and downstream industry locate in di¤erent regions. Moreover, the viability of the EPZ hinges on the permission of …rms based in the EPZ to also sell goods domestically and not only for exports. Finally, a policy of only allowing downstream …rms in the EPZ— a common feature of many zones— expands the range of trade costs for which agglomeration in Home is viable and reduces the wage inequality between the EPZ and the part of Home that is not covered by the zone. JEL Codes: F10, F13, L10, O40. I have received helpful comments by Richard Cooper, Rikard Forslid, Kai Guo and Diego Puga. Financial support from Jan Wallander’s and Tom Hedelius’ Research Foundation is gratefully acknowledged. yEmail: anders.akerman@ne.su.se.