The Paradox of Trade Liberalization

From a brand new study in the Journal of International Economics:

Using household survey data for 54 low and middle income countries harmonized with trade and tariff data, this paper offers a quantitative assessment of the income gains and inequality costs of trade liberalization and the potential trade-off between them.

A stylized yet comprehensive model that allows for a rich range of first-order effects on household consumption and income is used to quantify welfare gains or losses for households in different parts of the expenditure distribution. These welfare impacts are subsequently explored by deploying the Atkinson social welfare function that allows us to decompose inequality adjusted gains into aggregate gains and equality (distributional) gains.

Liberalization is estimated to lead to income gains in 45 countries in our study, and to income losses in 9 countries. The developing world as a whole would enjoy gains of about 1.9% of real household expenditures, on average. These income gains are negatively correlated with equality gains, such that liberalization typically entails a trade-off between average incomes and income inequality. In fact, such trade-offs arise in 45 out of 54 countries, and are primarily the result of trade exacerbating income inequality. By contrast, consumption gains tend to be more evenly spread across households.

While trade-offs are prevalent, our findings also suggest that liberalization would be welfare enhancing in the vast majority of countries in our study: in a large part of the developing world, the current structure of tariff protection is inducing sizable welfare losses. Explaining what drives these patterns is beyond the scope of this paper but an interesting avenue for future research (pg. 16).

I’m sure this offers a bit of a conundrum for those who have conflated concerns over inequality with caring for the poor.

Is Religious Faith a Global Force for Good?

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According to a new report from the Institute for Family Studies and the Wheatley Institution, religion appears to be a net gain “in 11 countries in the Americas, Europe, and Oceania.” From the executive summary:

When it comes to relationship quality in heterosexual relationships, highly religious couples enjoy higher-quality relationships and more sexual satisfaction, compared to less/mixed religious couples and secular couples. For instance, women in highly religious relationships are about 50% more likely to report that they are strongly satisfied with their sexual relationship than their secular and less religious counterparts. Joint decision-making, however, is more common among men in shared secular relationships and women in highly religious relationships, compared to their peers in less/mixed religious couples.

When it comes to fertility, data from low-fertility countries in the Americas, East Asia, and Europe show that religion’s positive influence on fertility has become stronger in recent decades. Today, people ages 18-49 who attend religious services regularly have 0.27 more children than those who never, or practically never, attend. The report also indicates that marriage plays an important role in explaining religion’s continued positive influence on childbearing because religious men and women are more likely to marry compared to their more secular peers, and the married have more children than the unmarried.

When it comes to domestic violence, religious couples in heterosexual relationships do not have an advantage over secular couples or less/mixed religious couples. Measures of intimate partner violence (IPV)—which includes physical abuse, as well as sexual abuse, emotional abuse, and controlling behaviors—do not differ in a statistically significant way by religiosity. Slightly more than 20% of the men in our sample report perpetuating IPV, and a bit more than 20% of the women in our sample indicate that they have been victims of IPV in their relationship. Our results suggest, then, that religion is not protective against domestic violence for this sample of couples from the Americas, Europe, and Oceania. However, religion is not an increased risk factor for domestic violence in these countries, either.

The relationships between faith, feminism, and family outcomes are complex. The impact of gender ideology on the outcomes covered in this report, for instance, often varies by the religiosity of our respondents. When it comes to relationship quality, we find a J-Curve in overall relationship quality for women, such that women in shared secular, progressive relationships enjoy comparatively high levels of relationship quality, whereas women in the ideological and religious middle report lower levels of relationship quality, as do traditionalist women in secular relationships; but women in highly religious relationships, especially traditionalists, report the highest levels of relationship quality. For domestic violence, we find that progressive women in secular relationships report comparatively low levels of IPV compared to conservative women in less/mixed religious relationships. In sum, the impact of gender ideology on contemporary family life may vary a great deal by whether or not a couple is highly religious, nominally religious, or secular.

There’s also some useful data on family prayer and worldwide family structure, socioeconomic conditions, family satisfaction, and attitudes and norms. Check it out.

Does Trade Promote Economic Growth?

Earlier this year, I did a literature review for class on the effects of trade on poverty. One section in particular focused on the link between trade and growth. A new Peterson Institute working paper by Douglas Irwin performed a similar service and I’m disappointed that I hadn’t come across it in time for my own paper.

So what are his conclusions?

The findings from recent research have been remarkably consistent. For developing countries that are behind the technological frontier and have significant import restrictions, there appears to be a measurable economic payoff from more liberal trade policies. As table 1 reports, a variety of studies using different measures of policy have found that economic growth is roughly 1.0–1.5 percentage points higher than a benchmark after trade reform. Several studies suggest that this gain cumulated to about 10–20 percent higher income after a decade. The effect is heterogeneous across countries, because countries differ in the extent of their reforms and the context in which reform took place (pg. 21).

 

Glad to know my own research was on point.

What Would the World Look Like Without FDI?

What would happen if foreign direct investment (FDI) simply disappeared? Or, more specifically, what would “a hypothetical world without outward and inward FDI from and to low- and lower-middle-income countries” look like? A brand new study tries to quantify this hypothetical. They find,

On average, the gains from FDI in the poorer countries in the world amount to 7% of world’s trade in 2011, the year of our counterfactual analysis. Second, all countries lose from the counterfactual elimination of FDI in the poorer countries.  Third, the impact is heterogeneous. Poorer countries lose the most, but the impact varies widely even within this group – some lose over 50% and some very little. The impact on countries in the rest of the world is significant as well. Some countries lose a lot (e.g. Luxembourg, Singapore, and Ireland) while others (such as India, Ecuador, and Dominican Republic) lose less. Pakistan and Sri Lanka actually see an increase in their total exports due to the elimination of FDI.

Figure 1 Percentage change in total exports from eliminating outward and inward FDI to and from low- and lower-middle-income countries

There’s more:

On average, the gains from FDI amount to 6% of world’s welfare in 2011. Further, all countries in the world have benefited from FDI, but the effects are very heterogeneous. The directly affected low- and lower-middle-income countries see welfare changes up to over 50% (Morocco and Nigeria), while some of the remaining 68 countries, such as Ecuador, Turkmenistan, and Dominican Republic are hardly affected. A higher country-specific production share of FDI leads to larger welfare losses, all else equal.  Intuitively, a larger importance of FDI in production leads to larger welfare losses when restricting FDI. A larger net log FDI position leads to larger welfare losses. Intuitively, if a country has more inward than outward FDI, restricting FDI will lead to larger welfare losses, as FDI is complementary to other production factors and therefore overall income increases more than FDI payments.

Figure 2 Welfare effects of eliminating outward and inward FDI to and from low- and lower-middle-income countries (%)

The authors conclude, “Overall, the analysis reveals that FDI is indeed an important component of the modern world economic system. The results suggest positive payoffs to policies designed to facilitate FDI, particularly those concerning protection of intellectual property.”

More on Free Trade

From Art Carden over at Forbes:

A new paper forthcoming in the journal American Economic Review: Insights estimates the effect of trade with China on American consumers and shows us what we stand to lose if we don’t end the trade war.

In “Estimating US Consumer Gains from Chinese Imports,” economists Liang Bai of the University of Edinburgh and Sebastian Stumpner of the University of Montreal and the Bank of France study price data from the Nielsen Homescan panel to find that trade with China reduced the prices Americans paid for consumer tradables by 0.19 percentage points per year. You can download a draft of the paper here.

Bai and Stumpner argue that about a third of the consumers’ gain from trade with China comes from greater product variety while the other two-thirds come from lower prices for the goods people were already buying.

Another way to put it is that inflation was lower–prices didn’t rise as rapidly–because of trade with China…The direction of the result won’t surprise economists, who have argued for centuries that international trade helps a country’s citizens by making it possible for them to get more with every hour of their hard-earned labor.

Scott Lincicome of the Cato Institute weighs in as well:

Trade and globalization have provided undeniable economic benefits for the vast majority of American families, businesses, and workers. Most obvious are the consumer gains. Several recent studies have found that freer trade with China, for example, has generated, through increased competition and lower prices, hundreds of billions of dollars in U.S. consumer benefits — benefits that, according to economists Xavier Jaravel and Erick Sager, are the equivalent of giving every American “$260 of extra spending per year for the rest of their lives.” Consumer gains from imports, in general tilted toward the poor and the middle class, are especially tilted toward them when it comes to goods that are made in China and sold at stores like Walmart. The magnitude of such benefits also debunks the well-worn myth that free trade is mainly about cheap T-shirts. Indeed, trade’s consumer surplus is a big reason that Americans today work far fewer hours to own far better essentials than at any prior time in U.S. history.

Then there are trade’s overall benefits for the economy. A 2017 Peterson Institute paper calculated the payoff to the United States from expanded trade between 1950 and 2016 to be $2.1 trillion, increasing U.S. GDP per capita and per household by around $7,000 and $18,000 — with benefits, again, disproportionately accruing to households in the bottom income decile. The U.S. International Trade Commission, moreover, found in 2016 that U.S. bilateral and regional trade agreements such as NAFTA generated small but significant annual increases in GDP, as well as in employment and real wages among highly skilled and less skilled American workers. As the American Enterprise Institute’s Michael Strain has noted, trade-skeptical populists who downplay this impressive macroeconomic boost ignore that, as our current economic moment attests, a small bit of extra GDP growth can mean big things for lower-wage, lower-skill workers in terms of employment and possible government assistance.

Trade and globalization also support American companies and workers, even in manufacturing. The Commerce Department, for example, has estimated that almost 11 million jobs depended on exports of U.S. goods and services in 2016, and foreign direct investment in the United States — the necessary flip side of our oft-maligned trade deficit — supported millions more. Meanwhile, American companies that adapt and thrive in today’s economy most often do so by making use of imports and global supply chains. The San Francisco Fed, for instance, recently estimated that almost half of U.S. imports are intermediate products purchased by American manufacturers to make globally competitive finished goods; the country’s biggest exporters, therefore, are also its biggest importers. Numerous other studies have found that the vast majority of the value of an American company’s assembled-abroad product (such as an iPhone, assembled in China) accrues to the U.S. company, including its workers and shareholders — not to the place of final assembly (despite what a gross bilateral trade balance, which attributes an import’s full cost to its final export source, might say).

…My 2017 survey of the academic literature on over a century of U.S. protectionism pre-Trump showed that, with very few exceptions, it imposed immense economic costs on American consumers, workers, and companies (more than $600,000 per year for every U.S. job created) while also failing to open foreign markets or resuscitate protected American firms and workers over the longer term. In case after case, the jobs still disappeared, and the companies either went bankrupt or came back to the government for more help. And it’s happening again: Though American steel consumers are paying much higher prices than their global competitors, U.S. steel-industry stocks lag far behind the S&P 500 index. For these and related reasons, economists of the Left, Right, and center continue to oppose tariffs overwhelmingly (93 percent of a recent IGM Economic Experts Panel of dozens of top economists, to be exact), and they support freer trade and globalization.

Say again: free trade is good.

Are Americans Religiously Literate?

I’ve written a lot of about political knowledge (or the lack of). A recent Pew study tests Americans’ religious knowledge and the results aren’t exactly inspiring. When it comes to Christian or biblical basics, the majority of the population answers correctly. Less so when it comes to Islam, but still a majority.

Most Americans are familiar with key elements of Christianity, terminology of nonbelief, basics of Islam

When you start to move beyond these religions, however, the knowledge drops drastically.

Three-in-ten or fewer Americans know when Jewish Sabbath begins, that Rosh Hashana is the Jewish New Year

One-in-five Americans know Protestantism (not Catholicism) traditionally teaches that salvation comes through faith alone

The next bit reminded me of an incident at church a few years back. During a lesson, the teacher made a comment about how he “never asks about other people’s religion, but they always ask me about mine.” He took this as evidence of the “truthfulness” of Mormonism. I did not hesitate to point out that their curiosity likely had less to do with the Church’s “truthfulness” and more to do with us being a supposedly weird, polygamous cult with a different book. I then noted that learning about other religions improves interfaith dialogue by allowing us to better communicate with those of different faith backgrounds.

As the data below demonstrate, that teacher was not alone: Mormons are some of the most well-versed when it comes to the Bible and Christianity, but some of the least knowledgeable regarding other religions.

Evangelical Protestants get the most questions right about Christianity; Jews are most well-versed in world religions

Overall, it appears that American religious literacy is pretty meh.

The Benefits of Global Technology Diffusion

Relying on a global dataset from the European Patent Office (PATSTAT), researchers were recently able “to trace knowledge flows using cross-patent citations, that is, the extent to which countries cite patents from other innovators as prior knowledge in their own patent applications. A first look at the data (Figure 3) suggests knowledge flows have increased significantly over the last two decades, and China and South Korea (depicted in Figure 3 as ‘other Asia’) have become substantially more integrated in global citations, both as citing and as cited innovators.”

They also find that “the share of technology leaders’ knowledge that diffuses to emerging market economies has increased steadily and significantly over time – and this finding is robust to excluding China from the ‘recipient’ economies (Figure 4). In contrast, the diffusion of knowledge from the G5 to (non-G5) advanced economies has remained flat or even moderated somewhat – albeit from a higher level – since the global financial crisis.”

It turns out

that both emerging market and other advanced economies have been able to capitalise on knowledge flows from the G5 to increase domestic innovation (measured by patenting) – with foreign knowledge playing a relatively larger role than domestic R&D in emerging market economies. These results also apply to productivity, suggesting that knowledge from the G5 has contributed to boosting income levels in other countries. The impact on productivity is economically meaningful, especially for emerging market economies. For instance, between 2004 and 2014, knowledge flows from the technology leaders may have generated, for an average country-sector, about 0.7 percentage point of labour productivity growth per year (Figure 5). This amounts to about 40% of the observed average sectoral productivity growth in this period.

Finally, the researchers’ “results point to a positive empirical relation internationally” between competition and innovation. They conclude,

Globalisation has intensified the international diffusion of technology, which is crucial to share growth potential across countries and boost global growth. The positive impact has been particularly large for emerging market economies, helping increase productivity for them, and supporting income convergence. Our results also suggest that the growing competition from emerging market economies may lead to more innovation, even in advanced economies.

Immigration Horrors Aren’t Exactly New

So remember that wall Trump keeps promising? Seventy percent of it was completed by previous administrations. Which is to say that immigration idiocy didn’t suddenly begin in 2016.

When it comes to deportations, the Trump administration hasn’t reached the heights of the Obama administration. According to Axios, “Immigration and Customs Enforcement has deported more immigrants this fiscal year than any full fiscal year of Donald Trump’s presidency, but it has yet to reach Barack Obama’s early deportation levels, according to new internal Department of Homeland Security figures obtained by Axios.”

From Reuters

According to the Marshall Project, the current detention system has been continually expanding over the last 25 years:

Under President Bill Clinton the daily population in detention tripled from what it had been in 1994 to nearly 20,000 at the end of his second term. A pair of laws passed in 1996 and signed by Clinton resulted in a vast expansion of the system, introducing mandatory detentions for asylum seekers and legal immigrants who had committed crimes, indefinite detention and additional spending on enforcement. In the aftermath of the terrorist attacks of 9/11, President George W. Bush also cracked down on immigration, ending a policy in 2005 that permitted those being caught crossing the border to be released until their court dates. By the time Barack Obama took office, the average daily population had ballooned to more than 30,000.

Though detention numbers dipped briefly under Obama, by the time of the 2016 election the daily average had reached just over 34,000 after an influx of Central American migrants at the southern U.S. border. In each administration, the growth of the detention system was used to broker political compromises in lieu of dealing with an overburdened immigration system.

This is why claims that “children in cages” began under previous administrations are actually true (though the Trump administration has taken it to 11). And at least some criticisms began under the Obama administration. For example, National Review pointed to a 2011 PBS Frontline special that shined a critical light on the administration’s immigration enforcement:

The yearlong investigation did an extensive and deep dive into the U.S. immigration enforcement system and stories of hidden abuse in detention centers. The nearly hourlong report makes for harrowing viewers: Women who have been detained complaining about being harassed by guards for sexual favors, sexually assaulted by guards, and guards threatening to kill the women they are harassing if they talk. A single mom with two daughters who overstayed a visa gets deported back to Mexico just because she changed lanes without signaling. Cops describe patrolling neighborhoods with significant number of illegal immigrants, where people instinctively run from the sight of a police car. A mother of five American-born children being deported over a speeding ticket.

The report describes, “a vast network of 250 detention centers, from county jails to large centers run by private prison companies, where immigrants facing deportation are held until they can be removed from the country. In the past decade, three million immigrants have been detained in the system.” The report shows white-domed tents surrounded by barbed wire, and are described as overcrowded warehouses of people. Those who have been through the detention centers describe beatings, racial slurs, official coverups, and threats to deport anyone who complains. The problem is described as more than a few “bad apples,” but more of “barrels of bad apples.”

…In the Frontline report, the administration insists the current enforcement policies are necessary to protect the American people. The report shows the president traveling to El Paso and boasting, “We have strengthened border security beyond what many believed was possible. We now have more boots on the ground and we are deporting those who are here illegally.” The deputy director of ICE boasts of “record-breaking numbers in terms of criminal alien removals” that include “1,000 murderers, 6,000 sex offenders, 45,000 serious drug violators. As we expand the deployment of Secure Communities, focus on criminal aliens, you’ll see that number continue to go up and up.” Officials from the administration boast that they’re finally taking enforcement seriously, a contrast with their lax predecessors.

One of the president’s immigration advisors callously declares, “At the end of the day, when you have a community of 10 million, 11 million people living and working in the United States illegally, some of these things are going to happen. Even if the law is executed with perfection, there will be parents separated from their children. They don’t have to like it, but it is a result of having a broken system of laws.”

Critics complain that the administration’s policy is just “enforcement on steroids.” The report warily details how ICE has extended its reach by enlisting the help of local law enforcement to better identify illegal immigrants who have committed crimes — turning local cops into a de facto enforcement branch of federal immigration law.

All of this really should teach us to not deify political administrations. What’s more, it should break the brain of every rabid anti/pro-immigration, pro/anti-Trump Republican/Democrat.

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Once More For the People in the Back: Nordic Countries Aren’t Socialist

Mocking Spongebob Meme | bUt WhAt AbOuT sWeDeN!! | image tagged in memes,mocking spongebob | made w/ Imgflip meme maker

So here’s something I’ve been saying for the last few years. From The Washington Post:

Undoubtedly, the Nordic nations, with their high incomes, low inequality, free politics and strong rule of law, represent success stories. What this has to do with socialism, though, is another question.

And the answer, according to a highly clarifying new report from analysts at JPMorgan Chase, is “not much.”

Drawing on data from the World Bank, the Organization of Economic Cooperation and Development and other reputable sources, the report shows that five nations — Sweden, Denmark, Finland, Norway and the Netherlands — protect property rights somewhat more aggressively than the United States, on average; exercise less control over private enterprise; permit greater concentration in the banking sector; and distribute a smaller share of their total income to workers.

“Copy the Nordic model if you like, but understand that it entails a lot of capitalism and pro-business policies, a lot of taxation on middle class spending and wages, minimal reliance on corporate taxation and plenty of co-pays and deductibles in its healthcare system,” the report notes.

It goes on to point out that the majority of Nordic countries

have zero estate tax. They fund generous programs with the help of value-added taxes that heavily affect middle-class consumers.

In Sweden, for example, consumption, social security and payroll taxes total 27 percent of gross domestic product, as compared with 10.6 percent in the United States, according to the JPMorgan Chase report. The Nordic countries tried direct wealth taxes such as the one that figures prominently in the plans of Sen. Elizabeth Warren (D-Mass.); all but Norway abandoned them because of widespread implementation problems.

The Nordic countries’ use of co-pays and deductibles in health care may be especially eye-opening to anyone considering Sanders’s Medicare-for-all plan, which the presidential candidate pitches as an effort to bring the United States into line with European standards.

The Post concludes,

These countries are generous; but they are not stupid. They understand there is no such thing as “free” health care, and that requiring patients to have at least some skin in the game, in the form of cost-sharing, helps contain costs…If they have established anything, it’s not socialism, or even the dominance of a benevolent state, but responsible governance. They have achieved a clear division of labor, between government (which arguably has a comparative advantage in health insurance and education) and the private sector (which is better at producing and distributing most other goods and services).

What the Nordic countries don’t do is pretend that society can have a strong and efficient social safety net without a big, mandatory financial contribution from the middle class. Nor do they deal punitively with the private sector, upon whose productivity the entire system ultimately depends.

American socialists’ enthusiasm for the northern European systems may be sincere. We shall see whether it can withstand full and accurate information about how those systems actually work.

Immigration’s Effects on Wages: Norway Edition

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From a new study:

In a recent paper (Bratsberg et al. 2019), we ask what the impact is of such a large immigration-induced labour-supply shock on occupational wages, labour costs, and the industry mix of the economy. The impact of immigration on labour markets has received substantial attention over the last decades. However, most studies focus on the wage structure (e.g. Dustmann et al. 2016). Evidence on the general equilibrium adjustment of occupational wages, labour costs, and industry employment in response to immigration shocks is still relatively scant. We set out to close this gap using high-quality and detailed administrative Norwegian data.

The eastern enlargement in 2004 and 2007 extended the common European labour market to include roughly 100 million individuals from the EU accession countries. With real wages among the highest and unemployment among the lowest in Europe, Norway became a popular destination for labour migrants.

Over the ensuing decade, Norway stands out as one of the countries that received the largest inflows of migrants relative to country size.

Norway is “particularly useful to study because the policy change was exogenous. As a part of the single market, but not a member of the EU, Norway is bound to adopt EU legislation without representation in the European Parliament and Commission. The policy change was instant, comprehensive, and externally imposed, providing a unique setting to study the impact of immigration.” The authors conclude,

Based on the Norwegian data, we observe that the relationship between the initial level of, and the change in, the immigrant share and language intensity is strong. According to our estimates, the change in the immigrant share is 11 percentage points lower in language-intensive versus non-intensive occupations (comparing the 90th versus 10th percentile) over the 2004-2013 period.

According to our results, labour immigration leads to large adjustments in relative industry employment and labour costs. These effects are particularly strong in industries that are initially intensive in the use of immigrant-heavy occupations. In line with our hypothesis, this can be traced back to movements in relative occupation wages: occupations with a large increase in labour supply faced 18% lower wage growth compared to occupations with a small increase (comparing the 90th versus 10th percentile) over the same 10-year period.

As is well known, a reduced-form approach can only identify relative effects – the common effect of immigration across all occupations and industries is not identified. To address the real wage and overall welfare effects of the migration shock, we therefore quantify the general equilibrium effects of immigration according to our calibrated model. The counterfactual analysis shows substantial real-wage losses in some occupations, whereas other occupations have real-wage gains. Although real wages in some occupations decline, the aggregate welfare effects of the immigration shock on natives are close to zero, as some natives switch to higher-wage occupations in response to the immigration shock. The welfare effect on the existing population of immigrants, on the other hand, is negative, as they have a comparative advantage in low-wage occupations.

As I said in my BYU article last year,

According to the 2017 NAS report, most empirical research shows that “the impact of immigration on wages of natives overall is very small.” However, “native dropouts tend to be more negatively affected by immigration than better-educated natives. Some research also suggests that, among those with low skill levels, the negative effect on natives’ wages may be larger for disadvantaged minorities.” Yet, these negative effects “tend to be smaller (or even positive)” when periods of ten years or longer are considered. In fact, research suggests “that immigration to the United States between 1990 and 2006 reduced the wages of natives without high-school degrees by only 0.7 percent in the short run and increased their wages by 0.6–1.7 percent in the long run.” Similar to the effects of employment, low-skill native wages may be depressed in the short run, but long-run effects tend to be zero to
positive (pg. 95).