Book Project
The Chains That Bind: Global Value Chain Integration and Currency Conflict
Since the height of currency manipulation amongst manufacturing exporters in the mid-naughts, currency manipulation as a strategy for export-led growth has declined. Between 2000 and 2012, eight exporting countries engaged in the practice, spending over $1 billion per day in foreign exchange intervention. By 2018, however, no currency manipulators remained. What explains the disappearance of currency manipulation as a viable, political strategy for export-led growth? In this book, I show that the cross-border trade of intermediate inputs decreases the political and economic benefits of running a depreciated currency, while the costs remain high. I argue that further global value chain integration acts as a bulwark against currency conflicts. I support the quantitative analyses, which utilize cross-sectional and survey data, with case studies in Europe and East Asia. At a time when Western governments are putting up trade barriers to stifle competition and promote domestic production, the book suggests a return to the very neo-mercantilist currency practices the West seeks to stifle.
Publications
Ethanol Plant Location and Land Use: A Case Study of the Conservation Reserve Program and Ethanol Mandate. (with Jennifer Ifft and Deepak Rajagopal). 2018. Applied Economic Perspectives and Policy.
This study uses a county-level difference-in-difference framework to estimate the share of re-enrollment into the Conservation Reserve Program (CRP) in response to local ethanol production capacity after the Renewable Fuels Standard (RFS). Relatively more land remained in CRP in ethanol-intensive areas after the RFS. This seemingly counter-intuitive result can be explained by post-RFS changes to the CRP that favored ethanol-intensive areas. Both CRP design changes and production trends correlated with ethanol plant location pose challenges for empirical strategies that use ethanol plant location to study production or land use decisions. Changes to CRP policies can play an important role in participation and land use decisions.
Link to article: [here]
Link to article: [here]
Review of Currency Statecraft: Monetary Rivalry and Geopolitical Ambition, by Benjamin J. Cohen.
Perspectives on Politics 17(3). 2019.
Perspectives on Politics 17(3). 2019.
Link to review: [here]
World Trade Report 2014 - Trade and Development: Recent Trends and the Role of the WTO. 2014. Geneva: World Trade Organization. (Contributor)
The World Trade Report 2014 looks at how four recent major economic trends have changed how developing countries can use trade to facilitate their development. These trends are the economic rise of developing economies, the growing integration of global production through supply chains, the higher prices for agricultural goods and natural resources, and the increasing interdependence of the world economy. The Report also looks into what role the WTO plays.
Full report: [download]
Full report: [download]
Submissions
The End of Currency Manipulation? Global Supply Chains and Exchange Rate Politics.
(Prepared for special issue of Economics & Politics, "Firms, States, and Global Production") - under review at E&P
(Prepared for special issue of Economics & Politics, "Firms, States, and Global Production") - under review at E&P
"Where have all the [currency manipulators] gone?" (Cole, 1997). Since the 1970s, export-oriented industrialization provided spectacular growth rates for developing states. As of 2018, however, no export-dependent states continued to engage in the purposive exchange rate depreciation that distinguishes this growth strategy. This is puzzling given (a) the past success of the growth model as well as (b) heightened protectionism from major import markets. I argue that global supply chain integration over the previous quarter century has decreased the political and economic benefits of engaging in currency manipulation as a policy of export-led growth while the costs remain substantial. Utilizing panel data across 35 advanced and emerging market economies between 1995 and 2015, I demonstrate a relationship between global supply chain trade and exchange rate appreciation as well as decreased foreign exchange intervention. I consider a political model of heterogenous firms and global supply chain integration to support this outcome, exhibiting that firm preferences for exchange rate undervaluation are non-linear with respect to firm size and global supply chain dependence. Together, these results suggest that economic power via firm size and global supply chain dependence are closely linked to the disappearance of currency manipulators.
Full paper: [download]
Full paper: [download]
Working Papers & Works in Progress
The (Anti-)Competitive Effects of Trade Liberalization in North America.
(with Nils Gudat)
(with Nils Gudat)
Trade liberalization, scholars have long recognized, improves the general welfare of an economy by increasing consumption opportunities due to increased competition. In the long term, however, as firms become more productive and squeeze smaller firms out of the marketplace, trade liberalization may actually have anti-competitive effects, and these effects may be endogenous to the politics of trade liberalization. This paper tests predictions on the behavior of aggregate prices and productivity in response to trade liberalization derived from the Melitz and Ottaviano (2008) model of international trade with heterogeneous firms. The model's equilibrium conditions for the short- and long-run distribution of the aggregate variables are amended to yield regression equations that identify the effects of tariffs and trade openness on domestic competition in the marketplace. Model predictions on the effects of third-country openness to trade are also tested and information on industry market structure is used to separately test the model's short- and long-run predictions. Our framework is estimated on a data set covering 64 manufacturing industries in the NAFTA member countries Canada, Mexico and the USA from 1988 to 2008. Consistent with the theoretical predictions, we find that in the short-term there are competitive effects of trade openness on prices and productivity, whereas in the long-term some of these effects are reversed. Third-country effects, however, run contrary to theoretical predictions and direct tests of short- and long-run industry reactions remain inconclusive. We posit these mixed, long-term outcomes stem from Chinese import penetration, as well as the endogeneity of trade liberalization lobbying efforts.
Full paper: [download]
Full paper: [download]
Enduring the Great Recession: Economic Integration in the European Union.
(with Ronald Rogowski, Lauren Peritz, and Thomas Flaherty).
(with Ronald Rogowski, Lauren Peritz, and Thomas Flaherty).
How durable is the European Union? Scholars have long feared that regional economic specialization, fostered by freer trade, would make the EU vulnerable to economic shocks. The most acute concerns surround the adoption of the common currency. The Euro is feared to raise the risk of asymmetric shocks, rendering the EU less of an "optimum currency area." The Great Recession of 2008-09 presents the perfect context to assess these predictions. We systematically test them using a novel dataset that covers all of the EU’s subnational regions and major sectors of the economy. We find that the EU’s most specialized regions actually fared better during the crisis. Specialized regions fared worse only within states outside the Eurozone. The heightened vulnerability of non-Eurozone states cannot be attributed to any failure of monetary, fiscal, or social policy on their part. Rather, our results suggest the common currency may have helped Eurozone members share risk. Despite growing political tensions within and among member states, our results bode well for the resiliency of the European Union.
Full paper: [download]
Full paper: [download]
Predicting Revealed Trade Preferences: A Factor Content Approach.
The field of international political economy has relied upon the Heckscher-Ohlin model of factor endowments to predict individual trade-policy preferences for several decades. However, prior work in the field of economics has shown that a country’s factor endowment only correctly predicts the direction of trade 50% of the time. In this paper I include a critical assumption from the Heckscher-Ohlin model in my empirical strategy, which provides a better fit to the data than all prior studies on individual trade preferences. Instead of assuming that the abundant factor in an economy is used intensively in the production of export goods, I include the factor intensity and the direction of trade for each individual’s industry of employment. I show that this factor content of trade approach better fits the data than a simple factor endowment approach. Moreover, although low-skilled labor exhibits consistent anti-trade preferences, the individual preferences of high-skilled labor depends largely upon the factor intensity of the individual’s industry of employment.
Full paper: [download]
Full paper: [download]
Measuring Central Bank Independence Using Speech.
(with Christopher Lucas. Work in progress.)
(with Christopher Lucas. Work in progress.)
In measuring the independence of a central bank from political influence, scholars tend to rely on aggregate outcome variables (inflation, interest rates, exchange rates) and characteristics of the bank and its members (turnover and the appointment process). Missing from these analyses is one of the main tools with which central banks also affect policy: what is known as ``forward guidance,'' or simply, speech. We propose a measure of central bank independence that captures the variation in speech, which can be used in real time to determine political influence on monetary policy outcomes. Utilizing a model of audio and speech structure (Knox and Lucas, 2019), we apply this new measure to test the independence of US Federal Reserve Chair Jerome Powell under President Trump, both before and after Trump's demands for more accommodative monetary policy in 2018 and 2019. We compare this to speeches by Arthur Burns, the Fed chair under Richard Nixon, who infamously accommodated the president before the 1972 re-election campaign. This novel measure provides IPE scholars with an alternative approach to analyzing central bank independence. Moreover, the application to the case of Trump and the US Fed addresses a current puzzle in political economy: are central banks losing their independence, and ultimately, credibility, in this current era of populism?