Person:

Antras, Pol

We study how financial frictions and the saving rate shape the long-run effects of trade liberalization on income, consumption and the distribution of wealth in financially underdeveloped economies. In our model, regardless of whether the capital account is open or not, trade liberalization reduces the share of wealth in the hands of entrepreneurs and may well reduce steady state consumption and income. Furthermore, trade opening is more likely to reduce steady-state consumption and output, the higher is the level of financial development. For economies with an open capital account, a higher saving rate also increases the likelihood that a trade liberalization leads to a reduction in steady-state consumption and output.

This paper develops a simple model of international trade with intermediation. We consider an economy with two islands and two types of agents, farmers and traders. Farmers can produce two goods, but in order to sell these goods in centralized (Walrasian) markets, they need to be matched with a trader, and this entails costly search. In the absence of search frictions, our model reduces to a standard Ricardian model of trade. We use this simple model to contrast the implications of changes in the integration of Walrasian markets, which allow traders from different islands to exchange their goods, and changes in the access to these Walrasian markets, which allow farmers to trade with traders from different islands. We find that intermediation always magnifies the gains from trade under the former type of integration, but leads to more nuanced welfare results under the latter, including the possibility of aggregate losses.

This paper analyzes the financing terms that support international trade and sheds light on how these terms shape the impact of economic shocks on trade. Analysis of transaction-level data from a U.S.-based exporter of frozen and refrigerated food products, primarily poultry, reveals broad patterns about the use of alternative financing terms. These patterns help discipline a model in which the choice of trade finance terms is shaped by the risk that an importer defaults on an exporter and by the possibility that an exporter does not deliver goods as specified in the contract. The empirical results indicate that cash in advance and open account terms are much more commonly used than letter of credit and documentary collection terms. Transactions are more likely to occur on cash in advance or letter of credit terms when the importer is located in a country with weak contractual enforcement. As an importer develops a relationship with the exporter, transactions are less likely to occur on terms that require prepayment. During the recent crisis, the exporter was more likely to demand cash in advance terms when transacting with new customers, and customers that traded on cash in advance and letter of credit terms prior to the crisis decreased their purchases by 17.3% more than other customers. The model illustrates that these findings can be rationalized if (i) misbehavior on the part of the exporter is of little concern to importers, and (ii) local banks in importing countries are more effective than the exporter in pursuing financial claims against importers.

The three central primitives of international trade theory are consumer preferences, factor endowments, and the production technologies that allow firms to transform factors of production into consumer goods. A limitation of traditional trade theory, however, is that the specification of technology treats the mapping between factors of production and final goods as a black box. In practice, the decisions of agents in organizations determine this mapping. Recently, international trade economists have incorporated insights from the field of Organizational Economics into their theories, thereby shedding new light on the mapping between factors of production and consumer goods. This research agenda is important for at least three reasons. First, it provides an explanation for phenomena that standard trade theory is unable to explain (such as the boundaries and hierarchical structure of multinational firms, or the determinants of intrafirm trade). Second, this literature illustrates how considering the endogenous response of organizations to changes in the economic environment (such as falling trade costs, declining communication costs, or improvements in contract enforcement) can dramatically affect or even overturn some predictions of standard models. Third, this line of models leads to a revision of key aspects of the design of efficient international trade agreements. What follows is a brief account of some of my own contributions to the literature on international trade and organizations. In my joint survey article with Esteban Rossi-Hansberg,1 we have attempted to provide a more balanced overview of this literature.

I survey the influence of Grossman and Hart's (1986) “The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration,” 94 Journal of Political Economy 691–719.) seminal paper in the field of International Trade. I discuss the implementation of the theory in open-economy environments and its implications for the international organization of production and the structure of international trade flows. I also review empirical work suggestive of the empirical relevance of the property-rights theory. Along the way, I develop novel theoretical results and also outline some of the key limitations of existing contributions.

The rise of offshoring of intermediate inputs raises important questions for commercial policy. Do the distinguishing features of offshoring introduce novel reasons for trade policy intervention? Does offshoring create new problems of global policy cooperation whose solutions require international agreements with novel features? Can trade agreements that are designed to address problems that arise when trade predominantly takes the form of the exchange of final goods be expected to perform in a world where offshoring is prevalent? In this paper we provide answers to these questions, and thereby initiate the study of trade agreements in the presence of offshoring. We do so by deriving the Nash and internationally efficient trade policy choices of governments in an environment in which some trade flows involve the exchange of customized inputs, contracts governing these transactions are incomplete, and the matching between final-good producers and input suppliers may involve search frictions. By characterizing the differences between Nash and internationally efficient policies in this environment, and by comparing these differences to those that would arise in the absence of offshoring of customized inputs, we seek to understand the implications of offshoring for the role of trade agreements. Our findings indicate that the rise of offshoring is likely to complicate the task of trade agreements, because in the presence of offshoring, (i) the mechanism by which countries can shift the costs of intervention on to their trading partners is more complicated and extends to a wider set of policies than is the case when offshoring is not present, and (ii) because the underlying problem that a trade agreement must address in the presence of offshoring varies with the political preferences of member governments. As a consequence, the increasing prevalence of offshoring is likely to make it increasingly difficult for governments to rely on simple and general rules -- such as reciprocity and non-discrimination -- to help them solve their trade-related problems.

This paper analyzes the effects of the formation of a regional trade agreement on the level and nature of multinational firm activity. We examine aggregate data that captures the response of U.S. multinational firms to the formation of the ASEAN free trade agreement. Observed patterns guide the development of a model in which heterogeneous firms from a source country decide how to serve two foreign markets. Following a reduction in tariffs on trade between the two foreign countries, the model predicts growth in the number of source-country firms engaging in foreign direct investment, growth in the size of affiliates that are active in reforming countries both before and after the tariff reduction, and an increase in the extent to which the sales of affiliates in reforming countries are directed towards other reforming countries. Analysis of firm-level responses to the creation of the ASEAN free trade agreement yields results that are consistent with these predictions.

How do foreign interests influence the policy determination process? What are the welfare implications of such foreign influence? In this paper we develop a model of foreign influence and apply it to the study of optimal tariffs. We develop a two-country voting model of electoral competition, where we allow the incumbent party in each country to take costly actions that probabilistically affect the electoral outcome in the other country. We show that policies end up maximizing a weighted sum of domestic and foreign welfare, and we study the determinants of this weight. We show that foreign influence may be welfare-enhancing from the point of view of aggregate world welfare because it helps alleviate externalities arising from cross-border effects of policies. Foreign influence can however prove harmful in the presence of large imbalances in influence power across countries. We apply our model of foreign influence to the study of optimal trade policy. We derive a modified formula for the optimal import tariff and show that a country's import tariff is more distorted whenever the influenced country is small relative to the influencing country and whenever natural trade barriers between the two countries are small.

How does the formation of cross-country teams affect the organization of work and the structure of wages? To study this question, we propose a theory of the assignment of heterogeneous agents into hierarchical teams, where less skilled agents specialize in production and more skilled agents specialize in problem solving. We first analyze the properties of the competitive equilibrium of the model in a closed economy, and show that the model has a unique and efficient solution. We then study the equilibrium of a two-country model (North and South), where countries differ in their distributions of ability, and in which agents in different countries can join together in teams. We refer to this type of integration as globalization. Globalization leads to better matches for all southern workers but only for the best northern workers. As a result, we show that globalization increases wage inequality among nonmanagers in the South, but not necessarily in the North. We also study how globalization affects the size distribution of firms and the patterns of consumption and trade in the global economy.

We develop a tractable framework for the analysis of the relationship between contractual incompleteness, technological complementarities, and technology adoption. In our model, a firm chooses its technology and investment levels in contractible activities by suppliers of intermediate inputs. Suppliers then choose investments in noncontractible activities, anticipating payoffs from an ex post bargaining game. We show that greater contractual incompleteness leads to the adoption of less advanced technologies, and that the impact of contractual incompleteness is more pronounced when there is greater complementary among the intermediate inputs. We study a number of applications of the main framework and show that the mechanism proposed in the paper can generate sizable productivity differences across countries with different contracting institutions, and that differences in contracting institutions lead to endogenous comparative advantage differences.