Multinational firms (MNEs) dominate trade flows, yet their foreign production decisions are often ignored in firm-level studies of exporting and importing. Using newly merged data on US firms' trade and global production, we show that MNEs are more likely to trade with countries that are proximate to their affiliates. We rationalize these patterns with a new source of firm-level scale economies that arises when fixed costs to source from, or sell in, a market are shared across the MNE's plants. These shared fixed costs create interdependencies between firms' production and trade locations that generate third-market responses to trade policy changes.

We develop a general equilibrium model of international trade in which the temporal structure of production is a key determinant of comparative advantage. Building on Böhm-Bawerk’s theory of capital, the model formalizes the idea that production processes with longer average periods of production (APPs) entail higher financing costs due to the time lag between input payments and revenue realization. We embed this insight into a multi-sector Ricardian framework with endogenous interest rates. Under autarky, countries with more patient consumers or more developed financial markets exhibit lower equilibrium interest rates and higher wage rates. With international trade, these countries typically gain a comparative advantage in sectors with longer APPs, though the model can also generate multiple equilibria and unconventional specialization patterns. We extend the framework to include trade costs (inclusive of shipment delays), global value chains, and international capital-market integration. Empirically, we present evidence showing that countries with more developed financial systems export disproportionately more in sectors with longer APPs, even after controlling for standard neoclassical and institutional determinants of comparative advantage. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Building on Bohm-Bawerk (1889), we propose a measure of the average period of production defined as a weighted average temporal distance between the time at which a firm employs its inputs and the time at which these inputs deliver finished goods to consumers. Under stationarity conditions, this measure corresponds to the ratio of a firm's total inventories to the cost of the goods it sells in a given period. Using data from publicly traded companies, we compute this measure for various industries and countries and show that, consistent with theory, it is lower the higher is the cost of capital.

The field of international trade has undergone significant theoretical and empirical advancements over the last 25 years. A key breakthrough has been the emergence of firm-level approaches to studying exporting, importing, and global value chains. The field has also experienced a quantitative revolution, driven by medium-scale models that rapidly assess the implications of trade cost shocks on real income. Additionally, a branch of the empirical literature has unshackled itself from the discipline of theoretical frameworks and from traditional data sources. Yet, several underexplored areas, or "uncharted waters," remain in international trade research. I outline new potential areas for theoretical research, including incorporating oligopolistic (strategic) behavior into core models, and fostering greater cross-disciplinary collaboration with other fields in economics and social sciences, such as behavioral economics or political science. I also discuss potential uncharted waters for empirical trade economists, while identifying potential new sources of data and ways in which official trade statistics could be improved. Finally, I explore how big data and artificial intelligence could reshape the design of international trade policy in coming years.

We present an economic rationale for countries resorting to foreign influence to export their ideology to other nations. Our model incorporates two fundamental elements: redistribution of the tax burden between capital owners and workers, and international capital mobility. The model highlights the role of ideology in shaping both the taxes implemented by governments and the cross-border externalities of these policy choices. Pro-capital governments set lower capital taxes than pro-labor governments. Importantly, pro-capital governments benefit from other countries setting low capital taxes, while pro-labor governments' efforts to shift the tax burden onto capital owners are facilitated by higher capital taxes abroad. These cross-border externalities create strong incentives for engaging in foreign influence activities. We solve for a political equilibrium in which incumbent governments may exert costly actions that probabilistically affect the electoral outcome in other countries. In equilibrium, pro-capital parties exert influence aimed at promoting pro-capital parties and policies worldwide, while pro-labor governments carry out foreign influence activities aimed at boosting pro-labor parties and policies in other countries.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Abstract The field of international trade has undergone significant theoretical and empirical advancements over the last 25 years. A key breakthrough has been the emergence of firm-level approaches to studying exporting, importing, and global value chains. The field has also experienced a quantitative revolution, driven by medium-scale models that rapidly assess the implications of trade cost shocks on real income. Additionally, a branch of the empirical literature has unshackled itself from the discipline of theoretical frameworks and from traditional data sources. Yet, several underexplored areas, or “uncharted waters,” remain in international trade research. I outline new potential areas for theoretical research, including incorporating oligopolistic (strategic) behavior into core models, and fostering greater cross-disciplinary collaboration with other fields in economics and social sciences, such as behavioral economics or political science. I also discuss potential uncharted waters for empirical trade economists, while identifying potential new sources of data and ways in which official trade statistics could be improved. Finally, I explore how big data and artificial intelligence could reshape the design of international trade policy in coming years.

We develop a model of export-platform foreign direct investment (FDI) in which final goods are produced only with labor and there are no fixed costs of exporting. We derive a simple condition that determines whether an MNE’s plants are substitutes or complements. This condition is shaped by the relative size of (i) the cross-firm elasticity of demand the MNE faces for its goods and (ii) the within-firm elasticity of labor substitution across the MNE’s plants. In two extensions of the model, we show that this complementarity is enhanced by firm-level (rather than plant-level) fixed costs of exporting and of sourcing inputs.

Import tariffs tend to be higher for final goods than for inputs, a phenomenon commonly referred to as tariff escalation. Yet neoclassical trade theory – and modern Ricardian trade models, in particular – predict that welfare-maximizing tariffs are uniform across sectors. We show that tariff escalation can be rationalized on efficiency grounds in the presence of scale economies. When both downstream and upstream sectors produce under increasing returns to scale, a unilateral tariff in either sector boosts the size and productivity of that sector, raising welfare. While these forces are reinforced up the chain for final-good tariffs, input tariffs may drive final-good producers to relocate abroad, mitigating their potential productivity benefits. The welfare benefits of final-good tariffs thus tend to be larger, with the optimal degree of tariff escalation increasing in the extent of downstream returns to scale. A quantitative evaluation of the US-China trade war demonstrates that any welfare gains from the increase in US tariffs are overwhelmingly driven by final-good tariffs.

I develop a framework to study the interplay between world trade and interest rates. The model incorporates an explicit notion of time and production length, in the “Austrian” tradition of Bohm-Bawerk (1889). Changes in the interest rate affect production lengths, labor productivity, and the financial costs of exporting. I decompose the response of the volume of world trade to changes in the interest rate into four components: a labor productivity effect, a “propensity to consume out of labor income” effect, a “temporal dimension of variable trade costs” effect, and a “selection into exporting” effect.

We study how the use of trade finance and the development of long-term relationships between exporters and importers facilitate international trade by allowing exporters to learn about demand uncertainty and counter-party risk. Using detailed micro-level Chilean data, we document that new exporters are more likely to use cash-in-advance (CIA) arrangements and gradually switch to providing trade credit as they continue to export. The initial use of CIA also depends on firms’ former exporting experience and the perceived riskiness of the destination. We set up an international trade model in which firms make exporting and trade financing decisions subject to demand and counter-party risks, estimate it to Chilean micro data and use it to quantify the relative importance of demand and counter-party risks and how trade finance choices affect the dynamics of export and learning about the risks within the relationship. Our model implies that the response of aggregate export volume and the number of exporters to aggregate shocks can overshoot in the short run if the shocks destroy long-term relationships and relationship-specific knowledge. The response can be sluggish and persistent because building up relationships takes time. The trade finance choices inform researchers of the learning dynamics and facilitate firms’ learning decisions.

The existence of a clear pattern of tariff escalation explains why effective rates of protection, as measured in equations (59) and (60), appear larger than nominal rates of protection on final goods. This still leaves open the question of what is the policy relevance of this finding. Are high effective rates of protection bad for economic welfare? Is tariff escalation consistent with the tariffs on final goods and on inputs that a social planner would set? The next sections will attempt to provide tentative answers to these questions.

We provide theory and evidence on the relationship between globalization and pandemics. Business travel facilitates trade and travel leads to human interactions that transmit disease. Trade-motivated travel generates an epidemiological externality across countries. If infections lead to deaths, or reduce individual labor supply, we establish a general equilibrium social distancing effect, whereby increases in relative prices in unhealthy countries reduce travel to those countries. If agents internalize the threat of infection, we show that their behavioral responses lead to a reduction in travel that is larger for higher-trade-cost locations, which initially reduces the ratio of trade to output. (JEL D91, F14, F60, I12, N30, N70, Z31)

I develop a stylized model of multi-stage production in which the time length of each stage is endogenously determined.Letting the production process mature for a longer period of time increases labor productivity, but it comes at the cost of higher working capital needs for firms.Under autarky, countries with lower interest rates feature longer production processes, higher labor productivity, and higher wages.In a free trade equilibrium, countries with lower interest rates specialize in relatively 'time intensive' stages in global value chains (GVCs).Yet, if free trade brings about interest rate equalization, wages are also equalized and the pattern of trade is instead shaped by capital intensity and capital abundance, regardless of the time intensity of the various stages.Reductions in trade costs lead to patterns of specialization associated with higher amounts of vertical specialization in world trade.A worldwide decline in interest rates similarly fosters an increase in the share of GVC trade in world trade.The framework also sheds light on the role of trade credit and trade finance in shaping international specialization.

This paper surveys the recent body of work in economics on the importance of global value chains (GVCs) in shaping international trade flows and multinational activity. On the empirical front, we begin reviewing several variants of the macro approach to measuring the relevance of global production sharing in the world economy, and we also offer a critical evaluation of the country- and industry-level datasets (or World Input Output Tables) that have been used to date. We next discuss the advantages and disadvantages of a burgeoning alternative micro approach that has instead employed firm-level datasets to document the ways in which firms have sliced up their value chains across countries. On the theoretical front, we propose an analogous dissection of the literature. First, we review a vast body of work developing country- and industry-level quantitative frameworks that are easily calibrated with World Input Output Tables, and that open the door for counterfactual exercises with minimal demands on estimation. Second, we overview micro-level frameworks that have treated firms rather than countries or industries as the relevant unit of analysis, and that have unveiled a number of distinctive mechanisms by which GVCs shape the determinants and consequences of international trade flows in ways distinct from traditional models of international trade. We close this survey with a discussion of a still infant literature on the desirability and effects of trade policy in a world of GVCs. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

We study a flexible class of trade models with international production net-works and arbitrary wedge-like distortions like markups, tariffs, or nominal rigidities. We characterize the general equilibrium response of variables to shocks in terms of microeconomic statistics. Our results are useful for decomposing the sources of real GDP and welfare growth, and for computing counterfactuals. Using the same set of microeconomic sufficient statistics, we also characterize societal losses from increases in tariffs and iceberg trade costs, and dissect the qualitative and quantitative importance of accounting for disaggregated details. Our results, which can be used to compute approximate and exact counterfactuals, provide an analytical toolbox for studying large-scale trade models and help to bridge the gap between computation and theory.

This paper surveys the recent body of work in economics on the importance of global value chains (GVCs) in shaping international trade flows and production patterns. On the empirical front, we begin by reviewing the “macro approach” to measuring the relevance of global production sharing in the world economy, while also offering a critical evaluation of the datasets (namely, World Input-Output Tables) that have been used to date to perform this value added accounting. We next discuss a “micro approach” that has instead employed firm-level datasets to document the ways in which firms have sliced up their value chains across countries. On the theoretical front, we propose an analogous dissection of the literature. First, we review a vast body of work developing countryand industry-level quantitative frameworks that are easily calibrated with World Input-Output Tables, and that shed light on the aggregate consequences of GVCs. Second, we overview micro-level frameworks that have treated firms rather than countries or industries as the relevant unit of analysis, and that have unveiled a number of mechanisms that are distinct from traditional models by which GVCs shape international trade flows. We close this survey with a discussion of a still infant literature on the desirability and effects of trade policy in a world of GVCs.