Working Papers
Economic consequences of cabotage restrictions: The effect of the Jones Act on Puerto Rico (with Manuel Jimenez)
We estimate the economic burden placed on Puerto Rico (PR) by the “Jones Act,” a US law that protects the US domestic maritime shipping market from foreign competition. We show that the supply of freight shipping to PR that satisfies Jones Act requirements lacks capacity for hauling general cargo and bulk commodities. In an empirical gravity framework, PR’s imports of final goods reveal relatively greater substitution towards non-US sources among products that tend a) to be shipped by sea, b) to be physically heavy, c) not to be moved in containers. We use a structural gravity model and those product characteristics to estimate the tariff-equivalent trade costs the Jones Act imposes on US shipments of final goods. We use these estimates to calculate the compensating variation of Jones Act removal. Our preferred estimates suggest that the cost of final expenditure in PR would be $1.4 billion (about 1.3%) lower per year without the Jones Act. The estimated annual burden on private consumption in PR is $691 million (1.2%, or approximately $203 per citizen). Ours are conservative estimates, for several reasons. Most importantly, we only consider effects of the Jones Act on purchases by final demand. The effects of the JA on upstream goods are not clearly visible in our estimates, which may reflect the evolution of the Puerto Rican industrial structure in ways that limit its reliance on inputs that are purchased from the U.S. and typically shipped by sea.
We estimate the economic burden placed on Puerto Rico (PR) by the “Jones Act,” a US law that protects the US domestic maritime shipping market from foreign competition. We show that the supply of freight shipping to PR that satisfies Jones Act requirements lacks capacity for hauling general cargo and bulk commodities. In an empirical gravity framework, PR’s imports of final goods reveal relatively greater substitution towards non-US sources among products that tend a) to be shipped by sea, b) to be physically heavy, c) not to be moved in containers. We use a structural gravity model and those product characteristics to estimate the tariff-equivalent trade costs the Jones Act imposes on US shipments of final goods. We use these estimates to calculate the compensating variation of Jones Act removal. Our preferred estimates suggest that the cost of final expenditure in PR would be $1.4 billion (about 1.3%) lower per year without the Jones Act. The estimated annual burden on private consumption in PR is $691 million (1.2%, or approximately $203 per citizen). Ours are conservative estimates, for several reasons. Most importantly, we only consider effects of the Jones Act on purchases by final demand. The effects of the JA on upstream goods are not clearly visible in our estimates, which may reflect the evolution of the Puerto Rican industrial structure in ways that limit its reliance on inputs that are purchased from the U.S. and typically shipped by sea.
Variable Scaling and Hypothesis Testing in the Gravity Model (with Anton Yang)
Statistical inference from a Likelihood Ratio (LR) test involving the Poisson Pseudo Maximum Likelihood (PPML) estimator is sensitive to data scaling choices. We demonstrate - both analytically and empirically - that the LR test statistic is inversely proportional to the scale of the data on the dependent variable. Scaling the data affects hypothesis tests of model restrictions; it does not affect parameter estimates or t-tests of the significance of individual variables. Our finding is relevant to a large literature on the gravity model of trade, where PPML is the preferred estimator and the data are routinely scaled.
Statistical inference from a Likelihood Ratio (LR) test involving the Poisson Pseudo Maximum Likelihood (PPML) estimator is sensitive to data scaling choices. We demonstrate - both analytically and empirically - that the LR test statistic is inversely proportional to the scale of the data on the dependent variable. Scaling the data affects hypothesis tests of model restrictions; it does not affect parameter estimates or t-tests of the significance of individual variables. Our finding is relevant to a large literature on the gravity model of trade, where PPML is the preferred estimator and the data are routinely scaled.
Renewable resource rents, taxation and the effects of wind power on rural economies (with Nhu "Claire" Nguyen)
The rapid growth of utility-scale wind energy generation is a potentially important boon to rural economies in the United States. Yet econometric estimates suggest that the local economic benefits of wind energy generation have been modest, perhaps because the sector is capital-intensive and financed almost exclusively by external capital. In this paper we argue that a) both the presence of a critical - but unpaid - factor of production (the wind) and generous federal subsidies are quantitatively important sources of economic rent, and b) a large portion of these rents accrue to providers of capital who reside outside the local economy. We build a partial equilibrium model that illustrates the mechanisms that generate economic rent, and integrate it into a small open economy general equilibrium model of a county’s economy. We calibrate the partial and general equilibrium models to data from two rural counties in Indiana, quantify the economic rents, and consider the consequences of a resource rent tax. Resource rent taxes generate significantly larger economic benefits for communities that host wind power, and offer an opportunity to spread the sector’s economic benefits more broadly within them. Broadly distributed revenues from resource rent taxes might facilitate greater acceptance of utility scale wind power in communities where the sector would otherwise be unwelcome. State public utility commissions provide an analytical infrastructure that could support local taxation of the kind that we consider.
The rapid growth of utility-scale wind energy generation is a potentially important boon to rural economies in the United States. Yet econometric estimates suggest that the local economic benefits of wind energy generation have been modest, perhaps because the sector is capital-intensive and financed almost exclusively by external capital. In this paper we argue that a) both the presence of a critical - but unpaid - factor of production (the wind) and generous federal subsidies are quantitatively important sources of economic rent, and b) a large portion of these rents accrue to providers of capital who reside outside the local economy. We build a partial equilibrium model that illustrates the mechanisms that generate economic rent, and integrate it into a small open economy general equilibrium model of a county’s economy. We calibrate the partial and general equilibrium models to data from two rural counties in Indiana, quantify the economic rents, and consider the consequences of a resource rent tax. Resource rent taxes generate significantly larger economic benefits for communities that host wind power, and offer an opportunity to spread the sector’s economic benefits more broadly within them. Broadly distributed revenues from resource rent taxes might facilitate greater acceptance of utility scale wind power in communities where the sector would otherwise be unwelcome. State public utility commissions provide an analytical infrastructure that could support local taxation of the kind that we consider.
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.
In Progress
"Implicit Utility and the Canonical Gravity Model" (with Anton Yang)
"Implicit Utility and the Canonical Gravity Model" (with Anton Yang)
