Lisandra Flach, Inga Heiland, Mario Larch, Marina Steininger, Feodora A. Teti
Abstract This paper evaluates the effects of sanctions on Russia between 2014 and 2019 and the resulting countersanctions. We estimate their impact on trade in a gravity framework, allowing for treatment heterogeneity among pairs and sectors, and use the estimated elasticities in a general equilibrium analysis. We find that the sanctions decreased trade with Russia in key sectors, translating to a loss in real income in Russia by 0.3%. Full decoupling of the EU and its allies from Russia would increase this effect to over 4%. Our results emphasize the role of deep sanctions as a foreign policy instrument and international cooperation.
{"title":"Quantifying the partial and general equilibrium effects of sanctions on Russia","authors":"Lisandra Flach, Inga Heiland, Mario Larch, Marina Steininger, Feodora A. Teti","doi":"10.1111/roie.12707","DOIUrl":"https://doi.org/10.1111/roie.12707","url":null,"abstract":"Abstract This paper evaluates the effects of sanctions on Russia between 2014 and 2019 and the resulting countersanctions. We estimate their impact on trade in a gravity framework, allowing for treatment heterogeneity among pairs and sectors, and use the estimated elasticities in a general equilibrium analysis. We find that the sanctions decreased trade with Russia in key sectors, translating to a loss in real income in Russia by 0.3%. Full decoupling of the EU and its allies from Russia would increase this effect to over 4%. Our results emphasize the role of deep sanctions as a foreign policy instrument and international cooperation.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136062301","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Xiaohua Bao, Hailiang Huang, Larry D. Qiu, Xiaozhuo Wang
Abstract The notion that the exchange rate affects exports is well understood. However, whether exporters respond to the expectations of the exchange rate is unknown. Hence, in this study, we construct a measure of exchange rate expectations based on news articles from the Factiva database. We use machine learning to identify and classify news articles about the appreciation of the renminbi (RMB, Chinese currency). Our empirical estimation shows that from 2000 to 2006, Chinese firms reduced their exports in response to a higher expectation of RMB appreciation. They switched their sales from export to domestic markets. The responses are larger in low‐productivity firms, state‐owned enterprises, processing trade, and final goods trade.
{"title":"Exchange rate expectations and exports: Firm‐level evidence from China","authors":"Xiaohua Bao, Hailiang Huang, Larry D. Qiu, Xiaozhuo Wang","doi":"10.1111/roie.12709","DOIUrl":"https://doi.org/10.1111/roie.12709","url":null,"abstract":"Abstract The notion that the exchange rate affects exports is well understood. However, whether exporters respond to the expectations of the exchange rate is unknown. Hence, in this study, we construct a measure of exchange rate expectations based on news articles from the Factiva database. We use machine learning to identify and classify news articles about the appreciation of the renminbi (RMB, Chinese currency). Our empirical estimation shows that from 2000 to 2006, Chinese firms reduced their exports in response to a higher expectation of RMB appreciation. They switched their sales from export to domestic markets. The responses are larger in low‐productivity firms, state‐owned enterprises, processing trade, and final goods trade.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"136154332","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract I estimate the effect of financial constraints on the response of firms that import inputs to a large exchange rate depreciation. Using data from a census on Indonesian firms, I find that while domestic importers face lower value added due to a rise in their costs of production, foreign‐owned importers fare better: they are more likely to sustain higher value added, hire more labor and use more materials than domestic owned firms. These effects are driven by firms in industries with high demand for external finance, emphasizing the importance of access to finance in mitigating the impact of trade and credit shocks. This suggests another channel through which FDI can add value to a firm in a developing country, particularly with the increasing importance of trade in intermediate goods.
{"title":"Exchange rate shocks, multinational firms and access to finance","authors":"Anisha Sharma","doi":"10.1111/roie.12708","DOIUrl":"https://doi.org/10.1111/roie.12708","url":null,"abstract":"Abstract I estimate the effect of financial constraints on the response of firms that import inputs to a large exchange rate depreciation. Using data from a census on Indonesian firms, I find that while domestic importers face lower value added due to a rise in their costs of production, foreign‐owned importers fare better: they are more likely to sustain higher value added, hire more labor and use more materials than domestic owned firms. These effects are driven by firms in industries with high demand for external finance, emphasizing the importance of access to finance in mitigating the impact of trade and credit shocks. This suggests another channel through which FDI can add value to a firm in a developing country, particularly with the increasing importance of trade in intermediate goods.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135397120","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract We examine the extent to which financial sanctions imposed by Germany through its European Union and United Nations commitments cause collateral damage on Germany's trade in goods and services. Financial sanctions reduce Germany's inflows and outflows of financial assets, as well as imports and exports of goods and services. The relative effects on trade in goods and services are weaker than on financial assets, about half as large in the case of goods and two‐thirds as large in the case of services. The effect on trade in goods is entirely due to episodes where financial sanctions are accompanied by export restrictions of specific goods. In the case of services trade, only exports are affected by financial sanctions once export restrictions are considered. The primary channel through which sanctions affect the three types of cross‐border flows is the extensive margin. Anticipation effects are quite strong for financial assets and weak for services and goods.
{"title":"Smart or smash? The effect of financial sanctions on trade in goods and services","authors":"Tibor Besedeš, Stefan Goldbach, Volker Nitsch","doi":"10.1111/roie.12706","DOIUrl":"https://doi.org/10.1111/roie.12706","url":null,"abstract":"Abstract We examine the extent to which financial sanctions imposed by Germany through its European Union and United Nations commitments cause collateral damage on Germany's trade in goods and services. Financial sanctions reduce Germany's inflows and outflows of financial assets, as well as imports and exports of goods and services. The relative effects on trade in goods and services are weaker than on financial assets, about half as large in the case of goods and two‐thirds as large in the case of services. The effect on trade in goods is entirely due to episodes where financial sanctions are accompanied by export restrictions of specific goods. In the case of services trade, only exports are affected by financial sanctions once export restrictions are considered. The primary channel through which sanctions affect the three types of cross‐border flows is the extensive margin. Anticipation effects are quite strong for financial assets and weak for services and goods.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2023-09-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135404178","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The public sectors in many developing countries receive capital inflows from advanced countries. Notably, we show that higher levels of foreign borrowing play an important role in promoting economic activity in developing countries by relieving crowding out problems from local sovereign debt. Moreover, in comparison to previous contributions, we also show how participation affects economic activity in advanced countries. Using a micro‐founded two‐country model of money and banking, we show that there are crowding‐out effects in high income economies when the advanced country funds official foreign debt. Moreover, we find that there are significant implications for the effects of monetary policy when banks in the developed world hold more official foreign debt. In addition, the typical destructive effects of money growth in developing countries are weaker in the presence of higher levels of international borrowing. By comparison, the effects of monetary stimulus in the advanced country become more pronounced as banks hold more foreign bonds. Our analysis concludes by looking at optimal debt policy. Interestingly, the results suggest that developing countries should limit their reliance on foreign capital inflows.
{"title":"Capital flows to developing countries: Implications for monetary policy across the globe","authors":"Andre Harrison, Robert R. Reed","doi":"10.1111/roie.12703","DOIUrl":"https://doi.org/10.1111/roie.12703","url":null,"abstract":"The public sectors in many developing countries receive capital inflows from advanced countries. Notably, we show that higher levels of foreign borrowing play an important role in promoting economic activity in developing countries by relieving crowding out problems from local sovereign debt. Moreover, in comparison to previous contributions, we also show how participation affects economic activity in advanced countries. Using a micro‐founded two‐country model of money and banking, we show that there are crowding‐out effects in high income economies when the advanced country funds official foreign debt. Moreover, we find that there are significant implications for the effects of monetary policy when banks in the developed world hold more official foreign debt. In addition, the typical destructive effects of money growth in developing countries are weaker in the presence of higher levels of international borrowing. By comparison, the effects of monetary stimulus in the advanced country become more pronounced as banks hold more foreign bonds. Our analysis concludes by looking at optimal debt policy. Interestingly, the results suggest that developing countries should limit their reliance on foreign capital inflows.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2023-08-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45908863","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Sanctions encompass a wide set of policy instruments restricting cross‐border economic activities. In this paper, we study how different types of sanctions affect the export behavior of firms to the targeted countries. We combine Danish register data, including information on firm‐destination‐specific exports, with information on sanctions imposed by Denmark from the Global Sanctions Database. Our data allow us to study firms' export behavior in 62 sanctioned countries, amounting to a total of 453 country‐years with sanctions over the period 2000–2015. Methodologically, we apply a two‐stage estimation strategy to properly account for multilateral resistance terms. We find that, on average, sanctions lead to a significant reduction in firms' destination‐specific exports and a significant increase in firms' probability to exit the destination. Next, we study heterogeneity in the effects of sanctions across (i) sanction types and sanction packages, (ii) the objectives of sanctions, and (iii) countries subject to sanctions. Results confirm that the effects of sanctions on firms' export behavior vary considerably across these three dimensions.
{"title":"The effects of heterogeneous sanctions on exporting firms: Evidence from Denmark","authors":"Ina C. Jäkel, Søren Østervig, Erdal Yalcin","doi":"10.1111/roie.12705","DOIUrl":"https://doi.org/10.1111/roie.12705","url":null,"abstract":"Sanctions encompass a wide set of policy instruments restricting cross‐border economic activities. In this paper, we study how different types of sanctions affect the export behavior of firms to the targeted countries. We combine Danish register data, including information on firm‐destination‐specific exports, with information on sanctions imposed by Denmark from the Global Sanctions Database. Our data allow us to study firms' export behavior in 62 sanctioned countries, amounting to a total of 453 country‐years with sanctions over the period 2000–2015. Methodologically, we apply a two‐stage estimation strategy to properly account for multilateral resistance terms. We find that, on average, sanctions lead to a significant reduction in firms' destination‐specific exports and a significant increase in firms' probability to exit the destination. Next, we study heterogeneity in the effects of sanctions across (i) sanction types and sanction packages, (ii) the objectives of sanctions, and (iii) countries subject to sanctions. Results confirm that the effects of sanctions on firms' export behavior vary considerably across these three dimensions.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2023-08-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"49126297","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A dominant argument in the literature is that leaders tend to initiate military disputes in periods plagued by economic distress. This article revisits the diversionary theory and adapts it to the use of economic sanctions in the United States, contending that their use follows a similar diversionary logic. Using a novel dataset on US sanctions from 1989 to 2015, I find that presidents are more likely to use sanctions when unemployment is high and the president's party power in Congress is weak. I show that when doing so presidents opt for sanctions that inflict little harm on the US economy.
{"title":"Divert when it does not hurt: The initiation of economic sanctions by US presidents from 1989 to 2015","authors":"Hana Attia","doi":"10.1111/roie.12704","DOIUrl":"https://doi.org/10.1111/roie.12704","url":null,"abstract":"A dominant argument in the literature is that leaders tend to initiate military disputes in periods plagued by economic distress. This article revisits the diversionary theory and adapts it to the use of economic sanctions in the United States, contending that their use follows a similar diversionary logic. Using a novel dataset on US sanctions from 1989 to 2015, I find that presidents are more likely to use sanctions when unemployment is high and the president's party power in Congress is weak. I show that when doing so presidents opt for sanctions that inflict little harm on the US economy.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2023-08-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46415404","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Digital transformation has given firms new development capability. This paper portrays the overall digital transformation intensity of China's listed firms in 2007–20, and empirically examines the impact of digital transformation on outward foreign direct investment (OFDI) and its transmission mechanisms for the first time. It is found that digital transformation significantly enhances OFDI with three transmission mechanisms: (1) reduced transaction costs and (2) improved production and operation efficiency. The impact is more pronounced in the host countries whose economies are more digitalized, in private enterprises, and in the service industries than in their respective counterparts.
{"title":"Digitalization and outward foreign direct investment of Chinese listed firms","authors":"Linlin Fan, Jinghua Ou, Gongyan Yang, Shujie Yao","doi":"10.1111/roie.12702","DOIUrl":"https://doi.org/10.1111/roie.12702","url":null,"abstract":"Digital transformation has given firms new development capability. This paper portrays the overall digital transformation intensity of China's listed firms in 2007–20, and empirically examines the impact of digital transformation on outward foreign direct investment (OFDI) and its transmission mechanisms for the first time. It is found that digital transformation significantly enhances OFDI with three transmission mechanisms: (1) reduced transaction costs and (2) improved production and operation efficiency. The impact is more pronounced in the host countries whose economies are more digitalized, in private enterprises, and in the service industries than in their respective counterparts.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2023-08-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44824357","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A health crisis can impact GVCs adversely by raising bilateral trade costs and via supply‐ and demand‐side shocks in the exporting and importing countries. Focusing on trade in select GVC‐intensive sectors, we disentangle the effects of these different channels in the context of SARS and MERS in a structural gravity framework. The estimated effects are found to be small in magnitude and show significant heterogeneity by sector, channel and disease outbreak. SARS‐induced rise in bilateral trade costs is found to reduce the export value and number of products traded of both intermediate and final goods, while similar adverse effects from MERS are only observed on intermediate goods export value. There is more evidence for the adverse effects of supply‐shocks from both SARS and MERS in our results, while the expected negative effects of the demand‐shock are only observed for MERS. The SARS effects are found to diminish over time, pointing to resilience of the associated value‐chains. We also find suggestive evidence for SARS in particular being associated with geographical diversification and widening of value‐chains.
{"title":"How did GVC‐trade respond to previous health shocks? Evidence from SARS and MERS","authors":"A. Shingal, Prachi Agarwal","doi":"10.1111/roie.12701","DOIUrl":"https://doi.org/10.1111/roie.12701","url":null,"abstract":"A health crisis can impact GVCs adversely by raising bilateral trade costs and via supply‐ and demand‐side shocks in the exporting and importing countries. Focusing on trade in select GVC‐intensive sectors, we disentangle the effects of these different channels in the context of SARS and MERS in a structural gravity framework. The estimated effects are found to be small in magnitude and show significant heterogeneity by sector, channel and disease outbreak. SARS‐induced rise in bilateral trade costs is found to reduce the export value and number of products traded of both intermediate and final goods, while similar adverse effects from MERS are only observed on intermediate goods export value. There is more evidence for the adverse effects of supply‐shocks from both SARS and MERS in our results, while the expected negative effects of the demand‐shock are only observed for MERS. The SARS effects are found to diminish over time, pointing to resilience of the associated value‐chains. We also find suggestive evidence for SARS in particular being associated with geographical diversification and widening of value‐chains.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2023-08-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44451800","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the impacts of geographic proximity and investment connection on the outward foreign direct investment (OFDI) decisions by Chinese multinational firms, including both greenfield investment and cross‐border merger and acquisition. We model firms' OFDI expansion with the lagged spatial structure, and collect outward FDI data of 3479 Chinese multinational firms from 2002 to 2013 whose investment destination covers more than 160 countries. We find that the spatial expansion of firms' existing OFDI play an important role in shaping their future investment decisions. Firstly, firms tends to invest in destinations that are closer to China, and expand further into destinations that are geographically closer to their existing OFDI locations. This is the geographic network effect. Secondly, we also find that firms are more likely to invest in countries with more intense FDI from China, and extend their OFDI networks to destinations with stronger investment connections with their existing subsidiary locations. This is the investment network effect. We show that these two effects are robust to alternative investment and geographic network measures and further controls.
{"title":"Spatial outward FDI: Evidence from China's multinational firms","authors":"Yiqing Xie, Xiao-Bo Yu, Zhihong Yu, Yu Zhou","doi":"10.1111/roie.12698","DOIUrl":"https://doi.org/10.1111/roie.12698","url":null,"abstract":"This paper studies the impacts of geographic proximity and investment connection on the outward foreign direct investment (OFDI) decisions by Chinese multinational firms, including both greenfield investment and cross‐border merger and acquisition. We model firms' OFDI expansion with the lagged spatial structure, and collect outward FDI data of 3479 Chinese multinational firms from 2002 to 2013 whose investment destination covers more than 160 countries. We find that the spatial expansion of firms' existing OFDI play an important role in shaping their future investment decisions. Firstly, firms tends to invest in destinations that are closer to China, and expand further into destinations that are geographically closer to their existing OFDI locations. This is the geographic network effect. Secondly, we also find that firms are more likely to invest in countries with more intense FDI from China, and extend their OFDI networks to destinations with stronger investment connections with their existing subsidiary locations. This is the investment network effect. We show that these two effects are robust to alternative investment and geographic network measures and further controls.","PeriodicalId":47712,"journal":{"name":"Review of International Economics","volume":null,"pages":null},"PeriodicalIF":1.0,"publicationDate":"2023-08-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46676512","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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