Working Papers
The Geography of Payment Activity on PayPal (with Kornel Mahlstein and Simon Schropp)
We use data from the electronic payments company PayPal to study the geography of online payment activity. An empirical gravity model confirms previous findings pertaining to e-commerce, namely a distance elasticity of payment value that is substantially lower than is typically observed in conventional international trade data. Our rich dataset allows us to study margins of payment activity, and we find that the firm extensive margin is considerably less sensitive to geographic frictions than is payment value. We investigate the reduced role of this extensive margin of trade using an analytical framework that predicts that the size of a firm’s exports is positively related to the average distance over which those exports are sold. We find a considerably weaker link between the scale and the geographic scope of PayPal merchants’ exports on the platform than has been observed among firms engaged in conventional international trade. In the theoretic framework, a cross-sectional relationship between export scale and geographic scope emerges over time because firms’ total export growth is partially attributed to their entry into ever more distant markets. In merchant-level regressions, we find that the age of PayPal merchants’ accounts has only marginal effects on the scale and average distance of their export sales on the platform. Overall, our findings suggest that PayPal – and perhaps e-commerce more broadly – offers disproportionate benefits to relatively small and/or new trading firms, because it facilitates their access to
geographically distant markets.
We use data from the electronic payments company PayPal to study the geography of online payment activity. An empirical gravity model confirms previous findings pertaining to e-commerce, namely a distance elasticity of payment value that is substantially lower than is typically observed in conventional international trade data. Our rich dataset allows us to study margins of payment activity, and we find that the firm extensive margin is considerably less sensitive to geographic frictions than is payment value. We investigate the reduced role of this extensive margin of trade using an analytical framework that predicts that the size of a firm’s exports is positively related to the average distance over which those exports are sold. We find a considerably weaker link between the scale and the geographic scope of PayPal merchants’ exports on the platform than has been observed among firms engaged in conventional international trade. In the theoretic framework, a cross-sectional relationship between export scale and geographic scope emerges over time because firms’ total export growth is partially attributed to their entry into ever more distant markets. In merchant-level regressions, we find that the age of PayPal merchants’ accounts has only marginal effects on the scale and average distance of their export sales on the platform. Overall, our findings suggest that PayPal – and perhaps e-commerce more broadly – offers disproportionate benefits to relatively small and/or new trading firms, because it facilitates their access to
geographically distant markets.
Risk Management in Border Inspection (with Bilgehan Karabay and Shawn W. Tan)
As part of their commitments under the World Trade Organization’s Agreement on Trade Facilitation, many developing countries are set to adopt risk management, a strategy for selecting import shipments for inspection. In this paper we formalize key enforcement issues related to risk management. We argue that the complexities of international trade oversight mean that inspecting agencies lack certainty about the conditional probability that a given shipment will not comply with import regulations. Ambiguity of this sort is likely to be especially important in developing countries that lack the sophisticated information technology (IT) used in advanced risk management systems. We formalize a role for ambiguity in a theoretical model of border inspection. We provide evidence suggesting that ambiguity affects inspection rates. Finally, we calibrate the model and shock the ambiguity parameters to illustrate the consequences of an IT-driven improvement in risk management capabilities for equilibrium rates of search and compliance.
As part of their commitments under the World Trade Organization’s Agreement on Trade Facilitation, many developing countries are set to adopt risk management, a strategy for selecting import shipments for inspection. In this paper we formalize key enforcement issues related to risk management. We argue that the complexities of international trade oversight mean that inspecting agencies lack certainty about the conditional probability that a given shipment will not comply with import regulations. Ambiguity of this sort is likely to be especially important in developing countries that lack the sophisticated information technology (IT) used in advanced risk management systems. We formalize a role for ambiguity in a theoretical model of border inspection. We provide evidence suggesting that ambiguity affects inspection rates. Finally, we calibrate the model and shock the ambiguity parameters to illustrate the consequences of an IT-driven improvement in risk management capabilities for equilibrium rates of search and compliance.
A Cross-country Assessment of Commitment Behavior in the Trade Facilitation Agreement (with Carlos Zurita-Castro)
We use a new database of commitments made during the process of ratifying the Trade Facilitation Agreement (TFA) to study variation in countries’ commitment behavior. The TFA is a novel World Trade Organization agreement because it allows developing countries to select commitments from a menu of best practices in trade facilitation, rather than to consent, or not, to a comprehensive package of negotiated commitments. The operation of this `a la carte approach to concluding trade agreements is worthy of study in its own right, but the commitment data also offer a high-level description of progress in an international effort to improve border management procedures around the globe. Our study uses data on TFA commitments to describe progress across subcomponents of the agreement. A regression model shows that the number of Type A trade facilitation commitments that a country made in the TFA ratification process depends on its level of development, its population size, and its past receipts of foreign aid to support trade facilitation. We use multi-dimensional scaling techniques to study differences in the content of national commitment bundles. This approach demonstrates that variation in the content of countries’ commitments is closely tied to the number of commitments made.
We use a new database of commitments made during the process of ratifying the Trade Facilitation Agreement (TFA) to study variation in countries’ commitment behavior. The TFA is a novel World Trade Organization agreement because it allows developing countries to select commitments from a menu of best practices in trade facilitation, rather than to consent, or not, to a comprehensive package of negotiated commitments. The operation of this `a la carte approach to concluding trade agreements is worthy of study in its own right, but the commitment data also offer a high-level description of progress in an international effort to improve border management procedures around the globe. Our study uses data on TFA commitments to describe progress across subcomponents of the agreement. A regression model shows that the number of Type A trade facilitation commitments that a country made in the TFA ratification process depends on its level of development, its population size, and its past receipts of foreign aid to support trade facilitation. We use multi-dimensional scaling techniques to study differences in the content of national commitment bundles. This approach demonstrates that variation in the content of countries’ commitments is closely tied to the number of commitments made.
Expediting Trade: Impact Evaluation of an In-House Clearance Program (with Ana M. Fernandes and Claudia Berg)
Despite the importance of trade facilitation as an area of trade and development policy, there have been very few impact evaluations of specific trade facilitation reforms. This paper offers an evaluation of in-house clearance, a reform that allows qualified firms in Serbia to clear customs from within their own warehouse rather than at the customs office. The pooled synthetic control method applied here offers a novel solution to many of the empirical challenges that frustrate efforts to evaluate trade facilitation reforms. The method is used to estimate causal impacts on trade outcomes for 21 firms that adopted in-house clearance for import shipments. The program compressed the distribution of clearance times for adopting firms, but the estimated effects on median clearance times, inspection rates, and import value were not statistically significant. Tests for heterogeneous program impact do not indicate that the program affected adopting firms differently. Overall, the results suggest that the most evident benefit of the program for participating firms is reduced uncertainty about clearance times.
Despite the importance of trade facilitation as an area of trade and development policy, there have been very few impact evaluations of specific trade facilitation reforms. This paper offers an evaluation of in-house clearance, a reform that allows qualified firms in Serbia to clear customs from within their own warehouse rather than at the customs office. The pooled synthetic control method applied here offers a novel solution to many of the empirical challenges that frustrate efforts to evaluate trade facilitation reforms. The method is used to estimate causal impacts on trade outcomes for 21 firms that adopted in-house clearance for import shipments. The program compressed the distribution of clearance times for adopting firms, but the estimated effects on median clearance times, inspection rates, and import value were not statistically significant. Tests for heterogeneous program impact do not indicate that the program affected adopting firms differently. Overall, the results suggest that the most evident benefit of the program for participating firms is reduced uncertainty about clearance times.
Forthcoming Book Chapters
21st Century Trade Wars (with Edward J. Balistreri)
We use the GTAP data in a GTAP-in-GAMS framework to calculate the economic effects of trade policies proposed by candidate Donald Trump in his successful campaign to become President of the United States. We calibrate a multi-sector multi-regional equilibrium with Melitz (2003) technologies in the manufacturing and business services sectors. We calculate optimal bilateral tariffs against China and Mexico and consider their optimal responses. In a more detailed look at Mexico we consider the 35 percent U.S. tariff on Mexican imports that Trump proposed during the campaign, and the 20 percent tariff on Mexican imports that was suggested shortly after he took office. We model optimal Mexican responses as well as responses that would be consistent with its World Trade Organization disciplines.
We use the GTAP data in a GTAP-in-GAMS framework to calculate the economic effects of trade policies proposed by candidate Donald Trump in his successful campaign to become President of the United States. We calibrate a multi-sector multi-regional equilibrium with Melitz (2003) technologies in the manufacturing and business services sectors. We calculate optimal bilateral tariffs against China and Mexico and consider their optimal responses. In a more detailed look at Mexico we consider the 35 percent U.S. tariff on Mexican imports that Trump proposed during the campaign, and the 20 percent tariff on Mexican imports that was suggested shortly after he took office. We model optimal Mexican responses as well as responses that would be consistent with its World Trade Organization disciplines.
Tom Hertel's Influence and its Lessons about Academic Inquiry (with David Hummels)
Fields of academic inquiry differ in their preferred forms of output, in the ways in which knowledge is accumulated and stored, and so in the ways that academic influence is measured. We compare Tom Hertel’s research record to other international economists of his generation in order to illustrate the unique breadth and influence of his work, and of the GTAP project broadly. We then provide an analytical framework that helps explain the evolution of the field of international economics from a tool-use standpoint. This framework helps us to assess the academic productivity gains from creating the GTAP model and consortium. It also provides a possible answer to a significant puzzle: why is GTAP increasingly influential in the physical and biological sciences, but less so within the international economics community?
Fields of academic inquiry differ in their preferred forms of output, in the ways in which knowledge is accumulated and stored, and so in the ways that academic influence is measured. We compare Tom Hertel’s research record to other international economists of his generation in order to illustrate the unique breadth and influence of his work, and of the GTAP project broadly. We then provide an analytical framework that helps explain the evolution of the field of international economics from a tool-use standpoint. This framework helps us to assess the academic productivity gains from creating the GTAP model and consortium. It also provides a possible answer to a significant puzzle: why is GTAP increasingly influential in the physical and biological sciences, but less so within the international economics community?
In Progress
"Implicit Utility and the Canonical Gravity Model" (with Anton Yang)
"Structural Gravity Model Estimates of Nested CES Import Demands for Soybeans" (with Guolin Yao)
"Implicit Utility and the Canonical Gravity Model" (with Anton Yang)
"Structural Gravity Model Estimates of Nested CES Import Demands for Soybeans" (with Guolin Yao)
